20 Jan 2011

Call for wages to keep pace as cost of living surges

7:06 pm on 20 January 2011

Wages will need to keep pace with the cost of living in order to avoid the economy nose-diving again, unions say.

The plea comes as inflation rose at its fastest quarterly pace in 22 years in the final three months of 2010.

Figures from Statistics New Zealand show the December quarter's 2.3% rise was largely due to an increase in the goods and services tax to 15% last October and surging petrol prices.

It is the highest quarterly increase in prices since 1989, the last time the Government increased GST from 10% to 12.5%.

Goldman Sachs economist Philip Borkin expects family budgets to come under more strain this year as food and oil prices rise further.

He warns if some workers increase wage demands to compensate, everyone could be hit by higher interest rates.

But Council of Trade Unions secretary Peter Conway says wages need to rise further - and not paying workers enough could undermine shaky consumer demand, as well as the overall economy.

Transport costs including petrol rose 4.3%, above the 2.2% increase attributable to the rise in GST.

Food prices rose 2.1% , less than the increase in GST and below the 2.4% increase in the previous three months.

Prices rose 4% over the whole of last year. Overall, 74% of items measured by Statistics New Zealand in its Consumer Price Index rose in the December quarter.