19 Jan 2015

Oil price drop no fuel for pay rise

5:42 am on 19 January 2015

Hefty pay rises could be few and far between this year, despite robust economic growth, and falling oil prices will be partly to blame.

no caption

Photo: RNZ

There is no doubt falling oil prices are good news for households, helping stretch their budgets further.

The Automobile Association estimates recent price drops have knocked about $400 off the typical annual fuel bill, to $1900.

However, the price drops also push down inflation, which employers use as a yardstick when considering pay increases.

Economists are picking inflation will remain near the bottom of the Reserve Bank's 1 to 3 percent target band this year.

Another year of subdued pay rises will disappoint many workers who have experienced stagnant or slow growing pay packets in recent years, particularly when essentials like housing costs, insurance and power bills have risen, sometimes sharply.

And while an improving economy should prompt stronger wage increases this year, Business New Zealand chief executive Phil O'Reilly warns workers should not get their hopes up.

"You will see a bit of a two speed wage bargaining atmosphere. Those in demand are able to demand more. Those not in demand (will) probably not able to demand very much," he said.

Last January, Finance Minister Bill English called for employers to reward workers with more substantial pay increases after the lean years of the global financial crisis.

Few heeded his call, with official figures showing wages rose just 1.6 percent in the year to September.

It was an area of weakness in an otherwise strong economic story that John Key's National-led coalition laid out for voters during last year's election.

Another year of meagre gains provides further opportunities for opposition parties to portray the expansion as uneven, with workers not getting their fair share.

The Council of Trade Unions is vowing to keep the Government honest.

President Helen Kelly said new labour laws which strengthen the hand of employers would make it harder for workers to get ahead.

She said workers deserve substantial increases. "It's fair, it's right. It's good for the economy, it's good for families, it's good for business," she said.

Ms Kelly said even 3 to 4 percent pay hikes were probably still far too low for those in sectors like aged care, cleaning and clerical services.

Pay hikes of that size will be rare and workers may have to be content with lower fuel bills for now.

However commodity prices like oil, which have fallen sharply, can also rise sharply - while a decent wage rise tends to stick.

Get the RNZ app

for ad-free news and current affairs