The New Zealand labour market remains tight with an unemployment rate near a record low even as more people join the workforce, adding to expectations the central bank will hike interest rates another 25 basis points later this month.
Data released by Statistics New Zealand on Wednesday highlighted the country's tight labour market, with both labour force participation and employment at their highest in more than three decades and the unemployment rate just off a record low. Economists expect the Reserve Bank of New Zealand (RBNZ) to raise its official cash rate (OCR) later this month by 25 basis points to 5.5% and say ongoing strength in the labour market makes that more likely. “The starting point for the labour market and inflation remains miles away from where they will need to be to provide the best chance for achieving sustained growth in future. We expect a 25bp hike in May,” said ASB Bank economists in a note. "More downside risks are emerging, but the OCR will not be cut until the RBNZ is confident there is sufficient slack in the labour market." The unemployment rate remained at 3.4% in the March quarter, the statistics data showed, slightly lower than the 3.5% forecast by economists, while the labour force participation rate at 72% was its highest since the series began in 1993. Wage growth eased slightly with the private sector labour cost index (LCI) excluding overtime recording a 0.9% rise on quarter, lower than the 1.1% forecast by economists. However, annual wage inflation was up 4.5%, its biggest increase since the series began in 1993. The RBNZ has been aggressive in its efforts to dampen inflation and in April hiked the official cash rate by 25 basis point to 5.25% and indicated a further hike was likely. Two-year swap rates jumped 8 basis points to a two-week high of 5.135% on the upbeat data while rate futures slipped as the market priced in around an 80% chance the RBNZ will hike at its May 24 meeting.
“The labour market remained white-hot in quarter-one, and well beyond ‘maximum sustainable’ levels, although slightly weaker LCI wage growth than expected will be a welcome development for the RBNZ,” said ANZ economists in a note. “Looking forward, we expect labour market pressures to ease over the rest of the year and into 2024,” it added. (Reporting by Lucy Craymer; Editing by Leslie Adler, Stephen Coates and Lincoln Feast)
