An improving employment demand and a recovery in wages that is under way may also spur on inflation, according to data released by Statistics New Zealand yesterday.
In the labour cost index data, salary and wage rates, which include overtime, grew 1.6% in the year to September, the same as the movement in the year to June.
Also released yesterday, the quarterly employment survey said that compared to the same quarter a year ago, full-time equivalent employees rose by 1.6%, and total paid hours by 2.4%.
ASB economist Jane Turner said the stronger-than-expected wage growth highlighted the potential for inflation pressures to build during the next year.
"We expect an improvement in employment demand will flow through to continued recovery in wages over the coming year. We expect the recovery in wage growth will underpin an increase in underlying inflation over the coming years," Ms Turner said.
BNZ senior economist Craig Ebert said the labour cost and "volatile" employment survey should prompt the Reserve Bank to be "a little nervous" about inflation.
"This underscores our belief that the economy will likely generate higher inflation, and sooner than many seem to be considering," Mr Ebert said in a statement yesterday.
However, Ms Turner said the softness in recent activity reduced the urgency for the Reserve Bank to return to normal policy settings of the interest-driving official cash rate in the near future.
The separate household labour force survey, which measures employment growth, will be out tomorrow and Ms Turner expects to see the unemployment rate decline from 6.8% to 6.7% for the third quarter.
"We continue to expect the Reserve Bank to wait until March 2011 to raise the official cash rate," from the present 3% level, Ms Turner said.
She said the distribution of wage increases showed wage freezes were coming to an end as a greater proportion of salary and wage earners received a wage increase of up to 3%.
Combined with a raft of Government charges, Ms Turner expected annual headline consumer price index inflation to rise to more than 5% by mid-2011 and challenge the Reserve Bank's assumption of a decline in medium-term inflation expectations over the coming years.
"However, inflation pressures are unlikely to become apparent until the end of the year, at the earliest," she said.
