4 Aug 2022

Wages, unemployment rate 'bad news for inflation control'

11:22 am on 4 August 2022

The impact of high unemployment rates would be worse for people than high inflation rates, says the Council of Trade Unions.

Man trying to find work with online job search engine on tablet.

Photo: 123RF

Stats NZ released its quarterly figures on Wednesday, revealing wages had risen at the fastest rate in 14 years, while unemployment remained very low.

The jobless rate edged up to 3.3 percent in the three months ended June from 3.2 percent, against expectations of a fall to a record low of 3.1 percent.

The data showed no employment growth during the quarter, but a marked shift from part time to full time work.

Council of Trade Unions' chief economist Craig Renney told Morning Report a New Zealand study this year found high unemployment was ten times worse for people's wellbeing than high inflation rates.

"So we want to see as many people in work as we can," Renney said.

The country was yet to reach its full employment rate, he said, with the data showing 200,000 people wanting more work but had been unable to get it.

New Zealand Initiative senior fellow Bryce Wilkinson said while getting people into work was ideal, it was not the track New Zealand was on.

The Reserve Bank couldn't let inflation get away so it had to keep going, Wilkinson said.

"The Reserve Bank's got to show that it's determined to get inflation down otherwise wage and prices would start being set on the expectation of big increases and then it's got a real problem on its hands."

The figures were "bad news for inflation control", Wilkinson said.

Both wages and unemployment had risen a bit faster than bank economists and the Reserve Bank had anticipated, he said.

"It's certainly a nice problem to have," Renney said.

But a third of workers didn't get a pay rise last year and only 26 percents of workers got a payrise of 5 percent or more, he said.

"So for many workers, wages aren't spiralling up, they're spiralling down in real terms right now."

Wilkinson said there wasn't an ideal rate of unemployment but rather a rate economists thought wouldn't cause inflation to break out for current circumstances.

"But that very much depends on what government policies are doing to keep people out of work who might otherwise be in work."

The level of welfare benefits relative to wages, how high the minimum wage was and how well educated and skilled the workforce is were all important, he said.

Renney said it was really important to understand where inflation came from.

"Certainly what we're not seeing right now is wages driving those prices, we're not seeing wages pushing on prices right now so it's really an extent to which the interest rate is going to be useful in that and we want to see that done carefully."

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