NZ: Labour cost index

Tue Feb 03 15:45:00 CST 2015

Consensus Actual Previous
Q/Q % change 0.5% 0.5% 0.4%
Yr/Yr % change 1.8% 1.6%

The labour cost index was up 0.5 percent on the quarter and 1.8 percent when compared with the same quarter a year ago. The unemployment rate jumped to 5.7 percent in the December 2014 quarter from 5.4 percent in the previous quarter. The labour force participation rate reached a record 69.7 percent. Annually, the number of people employed rose 3.5 percent in the Household Labour Force Survey (HLFS). While Auckland and Canterbury remain key contributors to national employment growth, employment growth in Canterbury eased in the year to the December 2014 quarter compared with previous quarters.

The Labour Cost Index (LCI) measures movements in base salary and ordinary time wage rates and overtime wage rates. The non-wage component measures cost changes including annual leave and statutory holidays; superannuation; ACC employer premiums; medical insurance; motor vehicles available for private use low interest loans. The LCI is a measure of the extent to which changes in businesses' input costs put pressure on the output prices they charge for goods and services.

As a measure of labour cost, the LCI helps the Reserve Bank of New Zealand measure inflation. The RBNZ, with an inflation target range of 1 percent to 3 percent uses this index in addition to other price indices to measure possible pressures in consumer prices.

RBNZ officials are always on the lookout for the prospects of inflationary pressures. Wage pressures tend to percolate when economic activity is booming and the demand for labor is rising rapidly. During economic downturns, wage pressures tend to be subdued because labor demand is down. By tracking labor costs, investors can gain a sense of whether businesses will feel the need to raise prices. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall.