Minimum wage workers falling behind as inflation climbs back up to 2.5%

Thursday, 17 April 2025

The consumer price index (CPI) records changes in the price of hundreds of goods and services. (First published January 20, 2022)

Workers on the minimum wage have seen their annual earnings fall by $1475 in real terms over the past two years, as a result of their pay not rising to meet higher-than-expected inflation, unions say.

Stats NZ reported that annual inflation rose to 2.5% in the three months to the end of March, up from 2.2% in the December quarter.

The minimum wage rose by 1.5% on April 1 to $23.50 an hour, or $48,880 a year for someone working a standard 40-hour week.

But to keep pace with the buying power that the minimum wage had two years ago, it would have needed to increase to $50,355 a year, Council of Trade Unions economist Craig Renney said.

As of June, 59,500 adult workers were on the minimum wage.

Other workers were “doing it tough”, with 46% of workers receiving a pay rise that was below the rate of inflation last year, Renney said.

Bank economists had expected a small lift in inflation to between 2.3% and 2.5% and the increase may not be enough to put at least some future interest rate cuts in serious doubt.

But the increase is nevertheless at the top end of forecasts and marks the first time annual inflation has risen since inflation peaked at 7.3% in the June 2022 quarter.

The quarterly increase in prices of 0.9% was the highest since the three months to September 2023.

Infometrics principal economist Brad Olsen said the rise in inflation wouldn’t rattle the Reserve Bank but would make it “a little bit uncomfortable”.

Stats NZ spokesperson Nicola Growden noted annual inflation still sat within the Reserve Bank’s 1% to 3% target band.

She also noted steep price increases were less widespread than previously, with less than a quarter of the goods and services in the basket of prices Stats NZ tracks rising by more than 5% over the year.

That was the lowest proportion in four years, she said.

Rates and insurance bills have been one of the biggest drivers of inflation in recent years.

ASB, which was the one bank to accurately forecast the size of the rise in inflation, said it was comfortable it would stay within the Reserve Bank’s target band for the rest of the year.

So-called “non-tradeable” or domestic annual inflation, which measures increases in the price of goods and services whose prices are largely determined inside New Zealand, eased to 4%, from 4.3% in the December quarter.

That will be of some comfort to the Reserve Bank, though the decline was less than the drop to 3.8% that both it and ANZ had expected.

“Given we are still seeing that number slipping back, it is not ‘red alert alarm bell’ immediately,” Olsen said.

But it did mean domestic inflation was not falling back as quickly as the central bank had expected, he said.

The bank would be looking at increases in some “vital” services such as telecommunications and electricity and feeling uncomfortable, despite progress in some other areas, he believed.

Prices of imports and other goods and services whose prices are largely determined overseas rose 0.3%, also slightly higher that ANZ’s forecast.

Rents and rates continue to be responsible for a significant chunk of inflation.

Rates increased by just over 12% over the year, accounting for 14% of overall inflation, Stats NZ reported.

Rents rose by 3.7%, also accounting for 14% of overall inflation.

The longer-term inflation outlook has become less clear since United States President Donald Trump began imposing tariffs on trading partners.

Tariffs are expected to reduce global economic growth, which would normally be deflationary, and they have already contributed to a sharp reduction in global oil prices.

But they are also expected to be inflationary in themselves, and any inflationary effect they have could be exacerbated if they led to disruptions in global supply chains.

Reserve Bank chief economist Paul Conway told The Post last month that the central bank didn’t feel it needed be too concerned about an uptick in inflation early this year, unless that started impacting people’s expectations of future inflation.

In a speech earlier this week, Conway said that while the likely impact of tariffs on New Zealand inflation was “ambiguous” the consensus within the Reserve Bank’s monetary policy committee was that they would on balance have a downward impact on inflation.