Statistics New Zealand has released wage and income data for the September quarter, with annual average ordinary hourly earnings soaring 7.4%, while wage inflation, as measured by the labour cost index (LCI), rose to 3.7%:
Statistics New Zealand noted that “this is the largest annual rise in ordinary time hourly earnings since this series began in 1989”, while the increase in the LCI was the largest since September 2008 and the “second highest annual increase since the series began in 1993”.
The private sector recorded explosive 8.6% annual growth in average ordinary hourly earnings, whereas public sector growth moderated to 4.3%:
The surge in wage growth is bad news for New Zealand’s housing market, since it shows that wage inflation – the key indicator of demand-driven inflation – is out of control and that a wage-price spiral is in effect.
The Reserve Bank of New Zealand was already on a hawkish footing prior to this release, and now it is certain to respond with further aggressive rate hikes in the months ahead.
In turn, mortgage rates will rise further and house prices, which have already fallen nearly 13% from peak, will plunge.
