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Prices and Costs
New Zealand experienced a substantial improvement in inflation performance during the 1990s relative to previous decades. Since September 1991, inflation has averaged 2.2% per annum.
Annual inflation reached 4.0% in June 2006 as increases in international oil prices flowed through to higher petrol prices. Inflation then moderated, with lower petrol prices and increased government subsidies for childcare and healthcare helping to reduce annual inflation to 1.8% in September 2007. Rising petrol and food prices then led to inflation increasing for four consecutive quarters to 5.1% in the year to September 2008 before falling to 3.4% in the year to December. Inflation is expected to decline further to around 1% by the end of 2009, driven by lower import prices and a general easing in pricing pressures in the economy due to weaker domestic and external demand, partly as a result of the international financial crisis.
Patterns of inflation vary between internationally tradable and non-tradable goods and services. Continued strength in the housing market, and high energy and electricity costs, along with stretched productive resources, contributed to non-tradable inflation averaging 4.3% from 2004 to 2007. Tradable inflation was generally low through to the end of 2007 due to the high dollar relative to historical levels. The rapid rise in oil prices over the first half of 2008, coupled with increased food prices, resulted in higher tradable inflation through until September 2008, when it reached 6.3%.
Wage growth has increased over recent years, reflecting a tight labour market and high inflation. Growth in the index of salary and ordinary-time wage rates averaged around 2.3% per annum in 2003 and 2004 but has been above 3% since September 2005, with a record 3.6% increase in the year to September 2008. Growth rates are expected to soften with lower inflation and easing employment over the period 2009/10.
Producer price inflation for inputs was negative for most of the period from the second half of 2002 until the first quarter of 2004, with the appreciating exchange rate an important contributor. Producer price inflation turned positive in the year to June 2004 and rose to an annual rate of 8.0% in the June 2006 quarter before declining sharply to 1.3% in June 2007, as a result of the higher New Zealand dollar. Record high price increases for oil and oil-related products resulted in producer price inflation reaching 13.6% in the year to June 2008, a figure expected to unwind rapidly as oil prices decline.
The following table shows on a quarterly basis the Terms of Trade Index, the Producers Price Index, the Consumers Price Index, and the Labour Cost Index and, in each case, the percentage change over the same quarter of the previous year.
| Terms of Trade Index(1) |
Producers Price Index(2) |
Consumers Price Index(3) |
Labour Cost Index(4) |
||||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | March | 1,057 | 6.1% | 1,143 | (0.3%) | 928 | 1.5% | 1,062 | 2.2% |
| June | 1,080 | 7.2% | 1,165 | 2.1% | 935 | 2.4% | 1,068 | 2.3% | |
| September | 1,077 | 7.3% | 1,176 | 2.5% | 941 | 2.5% | 1,075 | 2.2% | |
| December | 1,081 | 4.4% | 1,186 | 3.3% | 949 | 2.7% | 1,083 | 2.5% | |
| 2005 | March | 1,105 | 4.5% | 1,185 | 3.7% | 953 | 2.8% | 1,089 | 2.5% |
| June | 1,091 | 1.0% | 1,210 | 3.9% | 962 | 2.8% | 1,096 | 2.6% | |
| September | 1,087 | 0.9% | 1,240 | 5.4% | 973 | 3.4% | 1,108 | 3.1% | |
| December | 1,060 | (1.9%) | 1,251 | 5.5% | 979 | 3.2% | 1,117 | 3.1% | |
| 2006 | March | 1,069 | (3.3% | 1,264 | 6.7 | 985 | 3.3% | 1,124 | 3.2% |
| June | 1,097 | 0.5% | 1,301 | 7.5% | 1,000 | 4.0% | 1,132 | 3.3% | |
| September | 1,073 | (1.3%) | 1,319 | 6.4% | 1,007 | 3.5% | 1,143 | 3.2% | |
| December | 1,100 | 3.8% | 1,305 | 4.3% | 1,005 | 2.6% | 1,153 | 3.2% | |
| 2007 | March | 1,117 | 4.5% | 1,296 | 2.5% | 1,010 | 2.5% | 1,160 | 3.2% |
| June | 1,122 | 2.3% | 1,312 | 0.8% | 1,020 | 2.0% | 1,167 | 3.1% | |
| September | 1,163 | 8.4% | 1,344 | 1.9% | 1,025 | 1.8% | 1,179 | 3.1% | |
| December | 1,197 | 8.8% | 1,361 | 4.3% | 1,037 | 3.2% | 1,191 | 3.3% | |
| 2008 | March | 1,247 | 11.6% | 1,390 | 7.3% | 1,044 | 3.4% | 1,200 | 3.4% |
| June | 1,242 | 10.7% | 1,473 | 12.3% | 1,061 | 4.0% | 1,208 | 3.5% | |
| September | 1,214 | 4.4% | 1,527 | 13.6% | 1,077 | 5.1% | 1,222 | 3.6% | |
| December | NA | NA | 1,493 | 9.7% | 1,072 | 3.4% | 1,230 | 3.3% | |
(1) Base: June quarter 2002 = 1,000.
(2) All industry inputs. Base: December quarter 1997 = 1,000.
(3) Base: June quarter 2006 = 1,000.
(4) All industry ordinary time salary and wage. Base: June quarter 2001 = 1,000.
Labour Markets
New Zealand has a decentralised labour market. Enterprise bargaining predominates in the negotiation of the terms and conditions of employment. The Employment Relations Act 2000 provides the statutory framework that supports the building of productive employment relationships. The legislation promotes collective bargaining in various ways, such as providing that only unions and employers can be parties to collective agreements, and giving employees the right to strike in pursuit of multi-employer contracts. It also requires the parties to employment relationships (unions, individual employees and employers) to deal with each other in good faith.
At the same time, individual choice is protected in terms of freedom of association and union membership, and the choice of collective and individual employment agreements. The legislation promotes mediation to assist in the early resolution of workplace disputes.
In 2004 and 2006, the government made amendments to strengthen the Act to ensure it is better able to achieve its key objectives of promoting good faith, collective bargaining and the effective resolution of employment relationship problems. The amendments also provide protective measures for employees affected by the sale, transfer or contracting out of businesses.
A set of minimum employment standards also underpins employment relationships and protects the more disadvantaged in the workforce. Legislation here includes the Minimum Wage Act, the Equal Pay Act, the Holidays Act and the Parental Leave and Employment Protection Act.
Employment growth has been strong recently, with annual growth averaging 2.4% over the four years to 2008 although it has since eased to 1.0%. The unemployment rate increased to 4.6% in December 2008, the highest rate in five years, although still low by historical standards. At the same time, the labour force participation rate was at an all time high of 68.8%.
Labour productivity grew through 2007 and peaked in the year to March 2008 at 3.3%. Productivity growth slipped to 2.7% in the year to June 2008 and is expected to continue to weaken in the near term as the economy cools.
New Zealand's relatively high rate of job turnover and of firm creation and destruction suggests that there is a relatively low level of regulatory and institutional impediments to employment, disinvestment and innovation. Attention continues to be given to building up skill levels in the workforce and to addressing skill shortages.
- Employment/Unemployment
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- Source: Statistics New Zealand