The labour cost index, including overtime, rose 0.7% for the second quarter, or 3.5% for the previous 12 months, which ASB chief economist Nick Tuffley described as steady but within Reserve Bank expectations.
The quarterly employment survey, also released yesterday, showed a 0.8% increase for the second quarter, leading Mr Tuffley to predict the household labour force survey unemployment figures out later this week would be flat at around 3.9% compared to 3.1% for the first quarter.
But, Mr Tuffley said this could be short-lived, with the likelihood of weakening employment in the future as employers rein in hiring and, in some case, reduce staff through attrition.
There was nothing in yesterday's data that would have been unexpected for the Reserve Bank (RBNZ), he said.
"With wages behaving, for now, roughly as the RBNZ expected, we remain of the view that the RBNZ will continue to steadily cut the official cash rate (OCR) by 25 base points at consecutive meetings, taking the OCR down to 6.75%."
The OCR is currently 8%.
But unions warned workers would seek compensation for rising costs, saying that 3.5% wage rises were "modest" when inflation was tipped to peak at 5% in September.
The data revealed public sector wage increases continue to outstrip the private sector year-on-year but fell behind in the last quarter, rising 0.6% compared to the private sector's 0.8%.
This followed three strong quarterly wage increases for the public sector.
Mr Tuffley said the labour cost index remained strong, but was not accelerating, despite workers pressuring employers for compensation for rising fuel and food prices.
The index was an important measure for the RBNZ on whether inflationary pressures were flowing through to wage levels and the pressure was proving "challenging" for the central bank.
While workers were seeking compensation for high living costs, Mr Tuffley said firms were struggling with rising costs, slowing demand and falling profits.
"Indeed, the RBNZ is betting on lower demand keeping those pressures in check. Easing in difficulties in finding labour should also help ease wage inflation pressures over the coming year."
ANZ chief economist Cameron Bagrie agreed there was nothing stopping the RBNZ continuing to ease interest rates.
While wage inflation was still elevated, it was showing typical "late cycle persistence to a previous tight labour market."
Wages were typically the last measure to move, and Mr Bagrie said he did not read too much into the data, believing it had peaked and would start to ease for sectors other than those with skill shortages.
The greatest annual wage pressure came from mining 5.3%, health and community services 5.1%, finance and insurance 4.9%.
Wage pressure from the local Government sector at 4.5%, had the greatest impact on public sector labour cost index, and could impact on private sector wages as workers seek relativity.
Mr Bagrie also picked a slight increase in unemployment as measured by the household labour force survey, forecasting a 0.2% increase from the first quarter to 3.8%.
Council of Trade Unions economist Peter Conway said Treasury estimated labour productivity increased 3.1% in the year to March 2008 and as a result wage rises were "unlikely to impact on inflation to any great extent."
