Autumn Insights: Wage inflation and business impacts

Falling leaves, rising wages?

The latest views on wage inflation in New Zealand indicate that while overall inflation might be showing signs of slowing down, wage inflation remains a significant factor adding to inflationary pressures. This is not unsurprising as wage inflation often lags behind general inflation. 

Wage inflation as measured by the Labour Cost Index peaked in March 2023 for the private sector at 4.3%.  This had fallen to 3.9% at the end of December.  The Labour Cost index measures the percentage changes in all wages and salaries paid by sector, industry and role.

Community and personal service workers were reported as having the highest wage movements in the year to December.   Salary and wage rates increased for this occupation group by 5.4% in part as an outcome to pay parity and pay disparity increases in 2023.  Managers had the lowest overall increases to wages and salary in the private sector at 3% in 2023. 


What's On The Horizon

Looking ahead into 2024 and beyond, it is generally expected that wage inflation will continue to fall but it isn’t likely to be a sudden fall.  Minimum wage increased by 2% on 1 April,  Living Wage will increase by 6.9% on 1 September 2024.  The Government have also announced that they intend to change income tax thresholds from July 2024 to increase how much pay in hand employees receive. 

All this needs to be considered as you plan for increases in 2024. To help with making informed decisions our recommendation is to always start with reviewing how your current pay including any benefits and incentive schemes are working for you in terms of your ability to recruit and retain staff. 


Planning For Your Business

Understanding how your pay compares to the wider market helps with assessing where you may need to invest more and where costs could managed to  balance budgets.  You can then consider your business and individual performance and how much you could feasibly increase your overall wage budget by with consideration to all other business costs before you head into reviewing pay.

If you are increasing or changing pay for any employees remember to confirm that in writing as a variation to employment terms and conditions and so you have an audit trail.

Here at Grow HR we can help with setting up or reviewing pay structures, obtaining market pay data, drafting incentive schemes and advising on pay in general. For more information contact