Nominal and real

Stats New Zealand reports wage growth over the last year. It's not great in nominal terms, as the Press points out:

For those who actually got a pay rise, the mean increase for all surveyed salary and wage rates that rose in the December 2012 quarter was 3.0 per cent, compared with 3.1 percent in the September 2012 quarter.

The latest mean increase is the lowest since a 3.0 per cent increase in the September 2000 quarter. Of all pay rates surveyed, 55 per cent showed annual increases in the year to December 31.

But hold on a minute..

Year-on-year CPI inflation in the September quarter was 0.8%; December quarter was 0.9%. It's not been that low since December 1999. If we look at series SW512Q, which tallies mean percentage increase from previous quarter among those receiving a pay increase (presumably the one cited in the Press, above), we find that the median increase from December quarter 2003 through December quarter 2012 was 3.9%. If we look at CPI over the same time period, the median was 2.6%. I'd be happier getting a 3% nominal increase when the CPI is 0.9% than getting a nominal 3.9% increase when the CPI is 2.6%. And, the mean increase from the same quarter of the previous year (SW512A) is 3.7% (median increase against same quarter of the previous year is 3.0%).

If you net inflation out of wage growth, the last quarter is about double the median since December 2003 (note that the easy-to-get Stats series here starts December 2003).

Aha, that only counts increases among those getting an increase. What about the people who didn't get an increase?

Actually, things are looking pretty good there - and surprisingly so given the below-the-lower-bound current inflation outcomes. Over the whole of 2012, 43.75% of workers reported zero wage increase. From 2003 to December quarter 2008, the average quarter saw 41.3% of workers reporting zero wage increase. If our current low inflation rates were causing serious problems given nominal wage rigidity, I for one would be expected a heck of a lot more bunching around the zero increase threshold. Instead, this year's figures are about where they were in 2004.

I've put things into a Google Spreadsheet. The original LCI data is here.

The blue line traces nominal median wage increases, year on same quarter prior year, going back as far as the easy-to-get series goes. The red line traces CPI inflation. Note that I netted the GST increase out of those figures for December 2010-September 2011 as those were fully compensated by income tax cuts. The yellow line is simply the nominal wage increase less CPI.

Here is the percentage of workers receiving a wage increase over the same quarter in the prior year. So if you were making more this year than the same time last year, you show up as a 1 in this series, otherwise a zero. If low inflation combined with nominal wage rigidity causes problems, I'd have expected a sharper increase in the proportion of workers receiving no pay increase, although you could tell a story around low inflation and nominal wage rigidity where employers cut on the extensive margin while compensating on the intensive margin (cut some workers but pay remaining workers more).

The unemployment numbers come out later this week.

Inflation expectations

Bill Kaye-Blake notes the macroeconomic consequences of the delayed Christchurch rebuild, and wonders whether we consequently should have more stimulatory monetary policy:

First, I could see the logic in the plan. Austerity for reasons of national economic policy — reducing the debt, placating overseas money markets — while getting some Keynesian intervention through Christchurch. Secondly, it didn’t work. It became clear in 2011 that it wasn’t working. Nevertheless, the Government stuck with the plan longer than I think they should have, and longer than the state of the economy warranted.

He puts up graphs showing RBNZ estimates have been optimistic relative to experienced reality for the last several quarters, that core CPI has been low, and that unemployment remains high.

I'm happy to agree with Bill that the stalled rebuild had macro consequences, as well as the general awfulness for folks stuck in very poor housing. But let's have a look at some inflation expectations.

I'm here drawing from iPredict's quarterly markets on inflation rates. The table below has the risk of inflation outcomes above 3% and below 1%, based on the price of shares in the relevant markets.

Quarter	Probability inflation less than 1%	Median expected rate	Probability inflation greater than 3%
March 2013	84%	Less than 1%	1%
June 2013	23%	Between 1% and 2%	5%
September 2013	34%	Between 1% and 2%	10%
December 2013	15%	Between 1% and 2%	15%
March 2014	18%	Between 1% and 2%	19%

Inflation risks look pretty balanced over the medium term.

The markets are also expecting no change in the OCR in any quarter through the end of the forecasting horizon. The greatest likelihood of any change is a 21% chance of an 25bp increase in December 2013, though the markets also are pegging pretty stagnant GDP growth rates and an unemployment rate unlikely to drop below 6% before September quarter 2013.

You could maybe justify a small cut to the OCR on that risks currently should be weighted towards breaching the top rather than the bottom of the bound, and on that the median expected rate converges to a shade below 2% rather than a shade above it. But it's hard to see much case for that RBNZ has been grievously tight when they're targeting a medium term.

Wage and non-wage costs

A few interesting tidbits in the new Labour Cost Index.

Wage costs for employers - salary and wage rates including overtime - increased 2% over the last year. That's a bit over inflation, but real growth isn't strong.

Non-wage costs for employers, on the other hand, rose sharply. Says StatsNZ:

Annual leave and statutory holiday costs increased 8.4 percent in the year to the June 2012 quarter. In 2011 there were nine statutory holidays; in 2012 there were 11. This change increased employers' holiday costs, as did a 2.0 percent increase in pay rates.

Employers' superannuation costs per employee rose 4.1 percent in the year to the June 2012 quarter. This increase reflects continued growth in employer-subsidised KiwiSaver membership and higher pay rates, partly offset by falls in membership in other employer-subsidised superannuation schemes.

Of course wages are going to be pretty stagnant when legislation loads a pile of non-wage labour cost growth onto employers by statute but onto employees by tax incidence.

Prefer that you get more of your pay as wages rather than other considerations? Stop lobbying for more holidays and stop imagining that a pretty decent proportion of employer-side Kiwisaver contributions don't come out of your own pocket.