'Very small': Wood minimises impact of minimum wages on inflation

Workplace Minister Michael Wood has downplayed the impact of minimum wages on inflation as the government is considering to hike pay this year amid rising costs of living.

"What the evidence and all of the analysis [have] showed us in the last few years, it has a very small impact on inflation," Wood told AM in an interview. "For example, last year when we increased the minimum wage from $20 to $21.20, the overall estimated impact was 0.1%."

The statement came as New Zealand registered an inflation rate of 7.2% in December 2022, according to data from Stats NZ, with Prime Minister Chris Hipkins pledging to focus on the "global pandemic of inflation."

But recent reports of the new minimum wage hike prompted concerns that inflation as well as job growth will still likely be affected by the move.

"What we're trying to avoid is that wage-price spiral," said Senior National MP Erica Stanford in the same interview, referring to the phenomenon of rising prices as a result of higher wages.

In Australia, Reserve Bank governor Philip Lowe previously warned employers against falling into a "cycle" of wage hikes that will keep inflation levels high.

'Scaremongering'

Wood, however, tagged as "scaremongering" the claims about minimum wage affecting inflation and employment.

"It's a really important point about the minimum wage. We often get scaremongering about inflation, that it'll put unemployment up and it has been shown really to do none of those things in any significant way," he said.

According to the minister, the move to hike wages is to support lowest-income earners in New Zealand, stressing that the government is not limiting job generation.

"The evidence that somehow we restrict employment growth in a big way by putting up the minimum wage is just not there based on the evidence of the past five years. Our position is clear: we do support the lowest-income earners," he said.

Wood didn't mention how much the government will hike wages this year, but he said it will be worked on over the next few weeks.

"I'm not going to predetermine what it is. We have to go through the Cabinet process, but we are very clear though… that we do need to support those who have the least and have been working really hard through these periods," the minister said.

The National Party, on the other hand, expressed approval for a "modest" increase in wages.

"What we're saying is that a modest increase is the best way to go at the moment so that we don't put more pain and pressure," Stanford said.