Minimum wage hikes have 'very small impact on inflation', Workplace Relations Minister Michael Wood says

The Government is considering raising the minimum wage again as Kiwis battle with soaring living costs. 

But any significant increase would be a bold decision that risked stoking already red-hot inflation, economists and the Opposition have said. 

Annual inflation is already sky-high, and the Reserve Bank (RBNZ) late last year took the step of deliberately engineering a recession by significantly hiking interest rates - in a bid to curb skyward prices. 

Consumer confidence has also plunged to record-low depths and new Prime Minister Chris Hipkins has signalled a tough few months ahead.  

But, from a pay cheque point of view, the Government is again considering raising the minimum wage - after lifting it by about 5.9 percent last year

New Zealand's lowest-paid workers currently receive $21.20 per hour, up from the previous rate of $20.

"We go through a process every year," explained Workplace Relations Minister Michael Wood. "I receive advice… take a recommendation to Cabinet, we work that through and we'll do that over the next few weeks," he said of the 2023 minimum wage decision.

Wood told AM evidence showed decisions to raise the minimum wage in the past few years have "had a very small impact on inflation". 

The Opposition wasn't so optimistic, saying a significant raise would drive a "wage/price spiral".

Senior National MP Erica Stanford, appearing on AM alongside Wood, said her party would welcome a minimum wage hike but only if it was "modest".

"There will be - from this Government - the want to try and massively increase the minimum wage to try and offset that [inflation] problem. What you do then potentially get into is this wage/price spiral that we've seen." 

Annual inflation stood still for the first time in the December quarter after accelerating to 7.3 percent in the middle of last year - heights not seen in 32 years - before dropping slightly to 7.2.

As a result, the RBNZ in November hiked interest rates by 75 basis points to 4.25 percent - with warnings it could reach 5.5 percent. 

Minimum wages needed to be regularly reviewed in times of high inflation, the Organisation for Economic Cooperation and Development (OECD) said in a December report. However, "to be more effective, it is essential policies are coordinated with tax and benefits to ensure that increases in the statutory value of the minimum wage translate into higher take-home pay while limiting the rise in labour costs for employers", the OECD said. 

"We often get scaremongering about inflation - that [the minimum wage rise] will put unemployment up - and it's been shown, really, to do none of those things in any significant way," Wood said. 

While inflation remained high, New Zealand's unemployment rate was at a near-record low of 3.3 percent.