Wage inflation acceleration suggests skill shortages emerging
•ASB Cantometer Index remained steady in March.
•Labour market beginning to tighten.
•Capacity constraints could limit growth but will also fuel wage inflation in Canterbury over 2015.
The Cantometer Index remained at 1.7 in March, where it has been since the start of 2015, reflecting the increase in
activity from late last year.
“Following a relentless climb over the past two years, the Cantometer is starting to show signs of stabilising,” says
ASB Chief Economist Nick Tuffley. “Construction has lifted rapidly to a phenomenally high level in a short period of
time. While we expect construction activity will continue to remain at historically high levels for some time, the rate
of growth is likely to be more modest compared to recent years.”
While the increase of growth is beginning to slow down, wage inflation pressures appear to be lifting with Canterbury
wage growth stronger than in the rest of the economy.
“Wage inflation growth is likely a reflection of an increase in skill shortages. Construction activity in Auckland has
been similar to the levels experienced in Canterbury with both regions competing for skilled workers,” says Mr Tuffley.
“Strong wage inflation, combined with slowing job and population growth, suggest firms are once again starting to
struggle to recruit after two years of aggressive growth.”
This slowdown in growth largely indicates that capacity constraints are starting to bite.
“Consequently, we may see a pickup in wage and construction cost inflation in the Canterbury region over 2015,”
concludes Mr Tuffley.
About the Cantometer
The Cantometer is designed to summarise activity in Canterbury. The study takes a range of publicly available regional
economic data, which are standardised and aggregated into a summary measure. The index has been rebased to zero in June
2010 (the end of the quarter immediately preceding the first earthquake) such that a positive number represents activity
being above pre-earthquake levels.
Along with the aggregate Cantometer index, there are five sub categories: Construction, Housing, Employment, Consumer
spending and Miscellaneous*. These sub-indices will provide some insight into which sectors are driving the rebuild
activity at a given point in time.
For most activity data we have used the level of activity. However, when incorporating wages and house prices into the
index, levels are less informative. Instead the index uses prices relative to the rest of the country.
An increase in relative prices is a signal for resources to be reallocated to the Canterbury region.
The historical Cantometer series represented on the charts is a simple average of the complete set of data for each
month.
*The miscellaneous category includes car registrations, guest nights and permanent and long-term net migration. A common
factor driving these areas will be population growth, and we expect all these indicators to increase as the rebuild
gathers momentum.
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ENDS
This edition of the ASB Cantometer Index is embargoed until 5am on Tuesday 31 March 2015. The full report is attached
and will be available online.