Reuters
New Zealand’s jobless rate held just above historic lows and wage inflation hit a three-decade high but there are signs the labour market is easing, adding to expectations the central bank will pull back on the size of its interest rate hike this month.
Data released by Statistics New Zealand on Wednesday highlighted the country’s tight labour market, with wage inflation, labour force participation and employment all at their highest in more than three decades.
However, fourth-quarter inflation and employment have both undershot the Reserve Bank of New Zealand’s (RBNZ) November forecasts, and some economists are paring back expectations the central bank will again increase the cash rate by a record 75 basis points (bps) when it next meets in February.
“A little steam came out of the labour market at the end of last year,” said Kiwibank economists in a note.
“Nevertheless, New Zealand’s labour market remains tight.”
The unemployment rate increased to 3.4% in the December quarter, the statistics data showed, slightly higher than a forecast of 3.3% from economists.
Wage growth was also strong in the quarter, with the private sector labour cost index (LCI) excluding overtime recording a 4.1% lift on year, slightly below a forecast 4.3% increase.
RBNZ has been aggressive in its efforts to dampen inflation and in November hiked the official cash rate by 75 bps to 4.25% and promised further increases.
However, overnight indexed swaps now imply a peak for the cash rate of 5.19%, down from 5.28% on Tuesday.
Both ASB Bank and Bank of New Zealand now expect the central bank will move only by 50 bps rather than 75 bps in February, following a similar downgrade by ANZ and Kiwibank last week.
“The need for outsized OCR (official cash rate) hikes … looks less urgent,” ASB Bank said, adding that there remains a “fine line” between the bank hiking by 50 bps and 75 bps.
Furthermore, indicators are starting to show there is a softening in the labour market for the current quarter as well, and economists expect the unemployment rate to start lifting later in 2023.
“As we look to 2023, timely indicators point to a significant easing in labour market pressures, with job ads, monthly filled jobs growth, and employment intentions all easing significantly in recent months,” ANZ economists said.
