Close
 

Wage inflation to lift, but will it pass through to retail prices?

  • Opinion
  • July 5, 2018
  • Satish Ranchhod
Wage inflation to lift, but will it pass through to retail prices?

Wage inflation is set to rise over the next few years. In part, that’s due to planned large increases in the minimum wage. However, we expect that continuing competitive pressures will limit the pass-through to retail prices.

We expect wage inflation will rise from the relatively modest rates of around 1.7 percent per annum in recent years, up to rates of around 2.1 percent through 2019 and 2020. Much of this is due to planned large increases in the minimum wage. From the start of April the minimum wage increased from $15.75/hr to $16.50/hr, and the Government plans to increase it to $20/hr by April 2021 (economic conditions permitting).

Compared to other developed countries, minimum wage changes are likely to have a larger impact in New Zealand. Relative to average wage rates, New Zealand already has the highest minimum wage rate in the OECD. Planned policy changes will extend this lead further over the next few years.

Prior to the most recent increases, around 8 percent of workers were covered by the minimum wage (around 155,000 people). However, the proportion of workers in the retail and hospitality sectors is much higher, at around 20 percent and 30 percent respectively.

The planned increases will likely cover around 10 percent more of workers throughout the economy. There will also be some workers who will receive a pay rise in order to maintain wage relativities across roles. This means that by April 2021, as much as 25 percent of the workforce – about 530,000 workers – will have their pay rates affected by the increase in the minimum wage. However, the impact on labour costs will not be as dramatic, as these workers share of the total wage bill will be around 12 percent (up from around 3 percent currently).

We estimate that the minimum wage hikes will add about 1 percentage point to the Labour Cost Index (LCI) over the next four years combined. That’s compared to what would have happened if the minimum wage had continued to rise at the same rate as in recent years. The minimum wage has been rising by around 3.3 percent per annum since 2011, which has added around 0.1 percent to the LCI each year. Over the coming years, the minimum wage will rise by around 6.6 percent per annum, and will have a larger impact in later years as increasing numbers of people are affected.

A 1 percent rise in the LCI as a result of minimum wage hikes is expected to reduce the number of hours worked by 0.3 percent, and raise the unemployment rate by 0.2 percent.

Increases in wages will add to the upward pressure on prices. However, many affected industries – including the retail sector - have been wrestling with strong competitive pressures in recent years, including increases in online competition. We expect those pressures will continue dampening price increases for some time.  As a result, increases in the minimum wage are expected to only add an additional 0.3 percentage points to the CPI, spread over the next four years. In addition, in many industries where wages are rising, there is not a close relationship between wage costs and the prices faced by consumers (e.g. health care services).

Satish Ranchhod, Westpac senior economist.

​ ​

This is a community discussion forum. Comment is free but please respect our rules:

  1. Don’t be abusive or use sweary type words
  2. Don’t break the law: libel, slander and defamatory comments are forbidden
  3. Don’t resort to name-calling, mean-spiritedness, or slagging off
  4. Don’t pretend to be someone else.

If we find you doing these things, your comments will be edited without recourse and you may be asked to go away and reconsider your actions.
We respect the right to free speech and anonymous comments. Don’t abuse the privilege.

 

Restaurant Brands turns 22

  • News
  • March 26, 2019
  • Sarah Dunn
Restaurant Brands turns 22

As it prepares to celebrate its 22nd birthday, the listed corporate franchisor foresees a sunny future for the three – soon to be four - multi-site branded food retail chains it manages in New Zealand.

Read more
 
 

Linwood businesses struggle in mosque attack aftermath

  • News
  • March 26, 2019
  • Radio New Zealand
Linwood businesses struggle in mosque attack aftermath

A group of Christchurch businesses are struggling to get back on their feet after the attack on their neighbouring Linwood Mosque. Photo: RNZ / Katie Todd

Read more
 
 

Farmers account awarded to Clemenger Group

  • News
  • March 26, 2019
  • StopPress Team
Farmers account awarded to Clemenger Group

99 and Colenso BBDO have won the creative and customer experience business for Farmers. The win, after a competitive pitch, sees the advertising account return to 99 after a six-year hiatus.

Read more
 

Social scoreboard

Zavy and The Register have worked together to create a scoreboard that compares how the top 25 traditional media advertising spenders in New Zealand have performed on social media over the past 30 days, updated in real time.

 
topics
Concept to closet
Business coverage of New Zealand Fashion Week.
Town centres
A positive retail environment over the past 12 ...
Amazon Arrival
Keeping up with all things Amazon as it ...
The Retail Yearbook 2017
As we battle our way through the busiest ...
Hospitality enhancing retail
Some think food and integrated hospitality offerings will ...
The future is bright
We spoke with four retailers in their twenties ...
Spotlight on signage
At first glance, the humble in-store sign might ...
Red Awards 2016
The Red Awards for retail interior design celebrate ...
Auckland Unitary Plan
Auckland is changing. The Unitary Plan will decide ...
How to open a store
Sarah Dunn considers what it would take to ...
All things to all people
Kiwi retailers share their omnichannel strategies.
Rising stars
Retail's top young achievers.
Delivering on your promises
The sale isn't over until your item is ...
Retail in heartland New Zealand
Retailers keep the regions pumping, but how strong ...
Sisterhood
Women in retail help one another. We spoke ...
The changing face of retail
Shifting demographics are creating big changes in New ...
The retail yearbook
With the help of experts in the retail ...
Retail rogues
We put the spotlight on staff training. Jai ...
Here come the giants
Topshop has arrived in Auckland’s CBD, David Jones ...
Window shopping: A spotlight on social media
Sarah Dunn and Elly Strang look at how ...
From retail to e-tail
Ecommerce has become part of the way mainstream ...
Loyalty in the digital age
How are retailers maintaining loyalty? Sarah Dunn, Elly ...
The Innovators | In partnership with Spark Business
Technology is rapidly changing the retail industry as ...
 

Hemp products go beyond the specialty shelves

  • News
  • March 25, 2019
  • Sarah Dunn
Hemp products go beyond the specialty shelves

Since hemp seeds’ legalisation for growing, manufacture and sale in November 2018, supermarkets have quickly pivoted to include hemp products such as protein powder in their health food and specialty sections, but the trendy ingredient has already found its way into mainstream product categories.

Read more
 
 

No longer just for hippies: Is hemp the next coconut oil?

  • News
  • March 25, 2019
  • Sarah Dunn
No longer just for hippies: Is hemp the next coconut oil?

The Naturally Good Expo, held over June 2 – 3 in Sydney, will bring retailers, brands and practitioners together to learn about all things healthy, organic and natural. Among the topics discussed by industry leaders at the expo is the recent legalisation of hemp – it’s popping up everywhere. We asked John Leith of supplier Hemp Oz and speaker Susan Tapper of Holistic Marketing Healthy Sales for more information about this exciting new product category.

Read more
 

Military-style semi-automatics ban announced

  • News
  • March 21, 2019
  • The Register team
Military-style semi-automatics ban announced

As of 3pm on March 21, a wide range of semi-automatic weapons have been reclassified under section 74A(c) of the Arms Act as requiring an E endorsement on a firearms license. This means they can no longer be sold to those with A-category gun licenses, and their purchase now requires police approval.

Read more
 
Next page
Results for
Topics
Jobs
About us.

The Register provides essential industry news and intelligence, updated daily. And the digital newsletter delivers the latest news to your inbox twice a week — for free!

©2009–2015 Tangible Media. All rights reserved.
Use of this site constitutes acceptance of our Privacy policy.

Advertise
The Register

editor@theregister.co.nz

Content marketing/advertising? Email anita.hayhoe@icg.co.nz or call 022 639 3004

View Media Kit

}