By Lucy Craymer
WELLINGTON (Reuters) -New Zealand labour pressures have eased slightly but the country's job market remains tight despite some cooling of the broader economy, according to data released by Statistics New Zealand on Wednesday.
New Zealand's jobless rate rose to 4.0% in the fourth quarter, but was below expectations of a 4.2% unemployment rate, while employment increased 0.4%.
At the same time, wage growth increased in the quarter with the private sector labour cost index (LCI) excluding overtime recording a 1.0% lift on the quarter, stronger than the expected 0.8% increase.
“Fourth-quarter figures confirmed that the exceptionally tight NZ labour market is only slowly going off the boil,” ASB Bank senior economist Mark Smith said in a note.
ASB Bank expects unemployment to continue its upward journey, but it may not rise by as much as earlier expected, while wage inflation may not moderate as quickly as earlier expected, he added.
The New Zealand dollar rose to $0.6097 from $0.6079 as market reduced the chance of near term rate cuts following the data. Two-year swaps climbed to a seven-week high of 4.96% and is now up 26bps for the week, although this is largely due to the market pushing out the timing of U.S. cuts.
Labour cost inflation has been a challenge for the Reserve Bank of New Zealand, which has hiked aggressively since October 2021 to try to temper rising prices. Inflation, although off three-decade highs, at 4.7% remains well outside the central bank’s target band of 1% to 3%.
In November, the RBNZ held the cash rate at 5.5% while signalling further hikes might be needed if inflation did not continue to ease. Since then data has showed the economy is weaker than many had thought. The central bank is due to meet at the end of the month.
Michael Gordon, senior economist at Westpac Bank said wage inflation has not receded as quickly as the RBNZ would have hoped will have a bearing on its forecasts of how quickly inflation will return to with the target range.
“Overall, today’s results will probably reinforce the RBNZ’s stance that interest rate cuts are much further away than what the market is currently pricing in,” Gordon said.