An article from RNZ reports that in the year to September, nearly all but two sectors in New Zealand experienced a real-terms pay cut once inflation is taken into account.
Insights
- Inflation over the year was about 3 percent, but wage inflation rose by only 2.1 percent overall, or 2.4 percent within the public sector.
- The only sectors to see a real-terms pay increase were local government administration (up 0.3 percent) and health care and social services (just slightly above zero).
- All other sectors ended up worse off on average, meaning many workers’ pay did not keep pace with rising living costs.
- According to economists quoted in the report, this reflects weak economic conditions: many firms have limited capacity to raise wages, and previous salary lags are partly being corrected in sectors like local government and health.
- Forecasts suggest modest wage growth next year, with any recovery likely to rely more on increased hours worked rather than fresh hiring, partly because labour supply growth remains subdued amid low immigration.
Our Thoughts
This new data underscores how widespread the squeeze on real incomes has become in New Zealand, even while nominal wages rise slowly. For many workers, rising inflation has effectively eroded any gains in pay, a factor that will weigh heavily on household budgets and living standards. The fact that only two sectors managed to keep up suggests structural pressure on pay in the broader economy. While local government and health care may be seeing a modest catch-up, the broader trend highlights a challenging environment for wages. If inflation stays stubborn and wage growth remains subdued, pressure on cost-of-living, debt servicing and savings could grow significantly.
At the same time, the economists’ view that a labour-market recovery, and possibly better pay, may only show in latter 2026 suggests many households should prepare for continued financial tightness in the near term.
Our Questions for You
- What might this real-terms pay cut mean for New Zealand households already dealing with high housing, food, and living costs?
- How could government policies, for example, in public service wages or social services funding, influence whether pay catches up to inflation next year?
- Do you think employers will increasingly offer non-wage compensation (e.g. flexible hours, benefits) if they can’t raise pay, and how might that shape the labour market?
