Brian Fallow

Reinvigorating ties with Japan will be the first priority of a new business group aimed at expanding New Zealand's international trade and investment. The New Zealand International Business Forum, to be launched today, brings together leading exporters from the dairy, meat, fish, horticulture and software sectors and business organisations such as Business New Zealand, the Chambers of Commerce and Export New Zealand.

Chairman Graeme Harrison said the new group would seek to emulate the meeting of business and political leader in Washington last year which created some momentum for a free trade agreement there. Stephen Jacobi, who is executive director of the NZ-United States Council, would fill a similar role for the new group.

Japan is New Zealand's third largest export destination and second largest source of imports - "but we are only Japan's 43rd largest trading partner". Japan has made it clear it is not interested in a free trade agreement with New Zealand at this stage. But as such deals proliferate the risk is of being disadvantaged by preferential bilateral pacts between other countries.

A free trade agreement which gave US or Australian beef producers preferential access to the Japanese market would be bad news. Japan is New Zealand's second largest beef market despite a 38.5 per cent tariff. "But it's about investment too, and the wider relationship," Harrison said. "We want to build a stronger high-level business constituency in Japan for a closer economic relationship. It is also about working alongside government and saying we want more effort going into Japan."

Official efforts have been concentrated on negotiations with China with the aim of concluding a comprehensive trade agreement by April next year. "Over time we will develop further projects related to Korea and the European Union," Harrison said, "as well as supporting existing efforts with regard to Australia, the United States and China."

In addition to Harrison, the forum's board includes Don Elder of Solid Energy, Rod Carr of Jade, Charles Finny of the Wellington Chamber of Commerce, Robin Hapi of Sealord, John Maasland of Auckland International Airport, Jon Mayson of Export NZ, Tony Nowell of Zespri, Mike Petersen of Meat and Wool NZ, Phil O'Reilly of Business NZ and Henry van der Heyden of Fonterra.

Wage growth gathered speed in the last three months of last year, good news for retailers but not for a Reserve Bank looking for consumer spending to cool down.

The bank's preferred measure of wage inflation, the Labour Cost Index's private sector all salary and wage rates, rose 0.9 per cent in the December quarter, lifting the annual increase to 3 per cent from 2.9 per cent in September.

With overtime rates excluded, the increase was 1 per cent, up from 0.8 per cent in September, which pushed the annual increase to a record 3.2 per cent.

The public sector continues to outstrip the private sector, with central government salaries rising 3.8 per cent over 2006.

The labour cost index attempts to measure changes in pay rates for the same quantity and quality of work. It excludes promotions, service increments, bonuses or other recognition of increased productivity.

The unadjusted measure, which leaves those in, is a better indicator of what is happening to payroll costs. It rose 1.3 per cent in the December quarter and 4.9 per cent over the year.

The annual rate peaked at 5.7 per cent last March and has been slowing since then.

In the December quarter, the average increase was 5.2 per cent and the median 4.2 per cent.

Meanwhile another labour market indicator, Statistics NZ's quarterly employment survey, also released yesterday, also recorded robust growth.

Wage and salary earners' incomes rose 9 per cent over 2006, reflecting more people in jobs, longer hours worked and higher hourly pay.

Filled jobs rose 1.8 per cent in the quarter. Statistics New Zealand does not seasonally adjust that data.

Total paid hours rose 0.9 per cent (seasonally adjusted) making 3.8 per cent for the year.

That would substantially outstrip the increase in economic output over the year, implying declining labour productivity and employers hoarding workers.

"The acceleration in wage inflation will be a concern to the Reserve Bank," ANZ National Bank chief economist Cameron Bagrie said.

It had expected the drop in CPI inflation and the corresponding fall in inflation expectations to keep wage inflation contained. Its December forecasts had wage inflation remaining close to 2.9 per cent until the middle of this year, then easing.

"Today's wage inflation numbers will give them a large sense of discomfort as it suggests the combination of a tight labour market, past high headline inflation and possibly some spillover from higher public sector wage growth is seeping into wage-setting behaviour. Given the Reserve Bank's concerns about medium-term inflation pressure, they will be wary that the acceleration in wage inflation will find its way into general consumer prices."

The money market now sees an 80 per cent probability the bank will raise the official cash rate 25 basis points on March 8.

Council of Trade Unions economist Peter Conway said wage increases were modest for a labour market with widespread shortages.

The market has been tight for six years but there was little evidence that wage rises were having a major impact on inflation.

"For instance, the Labour Cost Index shows that ordinary time wages have gone up by 6.3 per cent in the past two years compared with a 25.3 per cent increase in median house prices in that period," he said.

"Consumer prices rose by 2.6 per cent in 2006 but with lower inflation forecast this year, hopefully workers can see wage rises that provide a more significant boost to real incomes."

Many unions would also be seeking employer contributions to superannuation.

"To close the 30 per cent gap with Australian wage levels, we need decent wage rises every year for the foreseeable future," Conway said.

"That will require continuous improvements in labour productivity alongside more widespread collective bargaining."