By Tracy Withers
Feb. 5 (Bloomberg) -- New Zealand's wages unexpectedly grew at a record pace in the fourth quarter as a labor shortage prompted companies to pay more to retain employees.
Wages for non-government workers, excluding overtime, increased 1.1 percent from the third quarter, when they rose 0.9 percent, according to Statistics New Zealand's labor cost index released in Wellington today. From a year earlier, wages gained 3.5 percent, the most since the series began in 1992.
Rising wages add to signs that inflation will remain beyond the 1 percent-to-3 percent range that Reserve Bank Governor Alan Bollard targets, dimming prospects he will cut borrowing costs this year. Bollard increased interest rates four times last year to a record 8.25 percent as a housing boom and worker shortage fanned spending and stoked prices.
``What we've seen today is going to make the Reserve Bank a little bit more nervous,'' said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. ``Top that with a strong employment report on Thursday and it suggests to me that there's very little chance of the Reserve Bank cutting rates this year.''
Pay rose faster than analysts predicted. The median forecast was for wages to climb 0.8 percent in the quarter and 3.2 percent from a year earlier, according to 11 economists surveyed by Bloomberg News.
New Zealand's dollar bought 79.22 U.S. cents at 2:05 p.m. in Wellington from 79.27 cents immediately before the report. Investors reduced bets on the size of a rate cut over the next year to 27 basis points from 32 points yesterday, according to a Credit Suisse index. A basis point is 0.01 percentage point.
Last month, Bollard said annual inflation will remain above 3 percent this year. In December, he predicted it wouldn't fall under 3 percent until June 2009. Consumer prices climbed 3.2 percent in the fourth quarter from a year earlier.
Seven of 16 economists surveyed by Bloomberg News say the central bank will keep the official cash rate unchanged until next year. Seven predict a cut in 2008 and one expects borrowing costs to increase.
Fanning consumer spending, a net 48 percent of workers expected to be earning more in a year's time, Westpac Banking Corp. and McDermott Miller Ltd. said in a report released Jan. 9. The net number subtracts those expecting to earn less from those expecting higher pay.
The prospect of rising wages has underpinned borrowing. Outstanding loans from the nation's banks rose 12.2 percent in December from a year earlier, the central bank said Jan. 30.
Bollard raised interest rates last year as the nation's jobless rate fell to a record-low 3.5 percent and wage growth accelerated. Paychecks have been boosted by a shortage of workers and high workforce-participation rates, which mean most of the people wanting a job have one, economists say.
Almost half of 464 companies surveyed by the New Zealand Institute of Economic Research in the fourth quarter said it was harder to find skilled workers than in the previous three months.
New Zealand's jobless rate was 3.6 percent in the fourth quarter, a report on Feb. 7 will probably show, according to the median estimate of 12 economists surveyed by Bloomberg News.
Thirty-eight percent of employers cited the need to match market rates and retain staff as reasons to increase wages, the statistics agency said today.
Including overtime, wages for non-government workers rose 1.1 percent from the third quarter, for a record annual increase of 3.4 percent, today's report showed. Economists expected a 0.9 percent gain in the quarter.
An experimental series based on reported salary and ordinary-time wage rates of non-government workers advanced 1.3 percent in the fourth quarter and 5 percent from a year earlier, Statistics New Zealand said.
The statistics bureau also released indicators showing the demand for labor increased in the fourth quarter.
The number of full-time equivalent employees climbed 2.9 percent from the third quarter. The number of total filled jobs increased 3 percent.
Total paid hours rose 1.3 percent, seasonally adjusted, from the third quarter, the statistics agency said.