NZ: Labour Market Conditions

August 2, 2016 05:45 CDT

Consensus Actual Previous
LCI (Q/Q) 0.5% 0.4% 0.4%
LCI (Y/Y) 1.6% 1.6%

The labour cost index (LCI) (including overtime) increased 1.5 percent from a year ago. This measure of wage inflation reflects changes in the rates that employers pay to have the same job done to the same standard. Annual LCI increases have been 1.5 percent to 1.8 percent since the March 2013 quarter. Private sector annual wage growth, as measured in the LCI, increased 1.6 percent. Public sector annual wage growth increased 1.3 percent. The latest annual growth in the public sector came from increases in central government (up 1.3 percent) and local government (up 1.7 percent).

The quarterly employment survey (QES) seasonally adjusted figures indicate the number of filled jobs increased 3.1 percent over the year to the June 2016 quarter. This compares with a 1.9 percent increase in the year to June 2015. The following industries made the largest contribution to the increase in filled jobs for the year to June 2016 (not seasonally adjusted) - accommodation & food services, construction, health care & social assistance and professional, scientific, technical, administrative & support services.
Wage growth remains subdued

The household Labour Force Survey (HLFS) data, which was due to be published today as part of the Labour Market Statistics has been delayed for two weeks until 17 August.

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.