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Don't blame wage increases for inflation says CTU

09 March 2006

Don't blame wage increases for inflation says CTU

There is no evidence of wage increases causing significant inflationary pressures, the Council of Trade Unions said today, in response to this morning's holding of the Official Cash Rate at 7.25%.

"We cannot compare the much greater inflation pressures coming from housing with the labour market," said Peter Conway, CTU Economist. "House prices have gone up by around 50% on average in the past 3 years, while wages have risen by only 8%."

"The labour market has shown a lag of 4 years for wages to respond to the high growth in the New Zealand economy, and it would be unfair to now say that with inflation falling from 3.4% to 3.2% and the economy slowing, the lag in the other direction should be as little as a few months," said Peter Conway. "The gap between pay rates here and in Australia will continue to worsen if we hastily clamp down on wages now."

"We expect firms to be in a strong position with retained earnings from high profits over 5 years," said Peter Conway. "Firms should have been using the previous five years of strong growth to reduce debt and invest in technology and skills, leaving them in a comfortable position to address wages this year."

"Unions recognise that wage growth momentum over the coming years can also be maintained by improving productivity," said Peter Conway.

"Labour shortages show no signs of easing significantly and that will keep wage growth going," said Peter Conway.

"It is unfair for New Zealand workers that Dr Bollard has, with his comments on wages, given business organisations another soapbox from which to make their usual alarmist and unjustified comments about wage increases," said Peter Conway.

ENDS

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