CPI increase still leaves need for big wages catch up

19 January 2012

CPI increase still leaves need for big wages catch up

The CPI increase for the 2011 year of 1.8 percent announced today, the first since the September 2010 quarter that doesn’t include the 20 percent increase in GST, is a significant reduction in annual inflation. But workers need to catch up from the lost ground in 2011 of significant increases in the cost of living and the fact that low income workers did not get the tax reductions needed to offset higher GST and other costs, says CTU Economist Bill Rosenberg.

“Also, the government is currently making its decision on the increase in the Minimum Wage which will take effect from 1 April. It should be significantly more than the inflation increase to provide relief to struggling low wage earners.”

The CTU has called for the minimum wage to rise to $15.00. The government raised it by only 2.0 percent to $13.00 last year, despite CPI inflation which was 4.6 percent in the year to September 2011.

“In the year to September, the Labour Cost Index rose only 2.0 percent while inflation was at 4.6 percent. Wage rates have been falling behind living costs. If the government is serious about raising people out of poverty and moving to a higher wage economy it will give a serious boost to the minimum wage and encourage employers to increase wages,” Rosenberg says.

“With the outlook for the economy looking increasingly mediocre, including a fall in ANZ’s job advertisement index, a boost in demand from higher wages would help many firms as well as their staff, and would encourage them to work on raising productivity which is an essential ingredient for a high wage economy.”

Rosenberg noted that this quarter’s fall in the CPI by 0.3 percent was strongly driven by a fall in vegetable prices. Without that, CPI would have increased 0.1 percent. The fall in vegetable prices returned them to a more normal level following shortages resulting from the Queensland floods in 2011. “That is therefore a one-off effect, unlikely to be repeated,” he said.

For the year to December 2011, there were significant increases in transport costs (up 5.7 percent), and housing and household utilities (up 2.4 percent).

ENDS