New Zealand Wage Growth Picks Up Modestly

RBNZ to Remain on the Sidelines

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The latest quarterly statistics on the employment front for New Zealand showed that the nation’s jobless rate inched higher. Meanwhile, dull wage growth remained but pressures from strikes across the different sectors are expected to boost wage growth eventually.

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Data released last week by the Statistics New Zealand showed that unemployment rate rose to 4.5% in the second quarter of the year. This was slightly higher from 4.4% in the first quarter. Data missed median expectations that suggested that unemployment rate would hold steady.

Employment in the nation was seen rising 0.6% as the participation rate eased to 70.8% down from the previously revised 70.9%.

Lower unemployment rate and falling immigration is said to give wage growth a boost and could eventually start to trigger price pressures. New Zealand’s consumer prices are still stubbornly below the lower end of the 1% – 3% inflation target band of the Reserve Bank of New Zealand.

The RBNZ has however signaled that interest rates would remain unchanged at least until there is more confidence in underlying price pressures. The markets estimate that the RBNZ will stay on the sidelines until at least the middle of 2019.

Besides targeting the inflation mandate, the RBNZ has also started its dual mandate which now includes full employment, similar to most other central banks in the G7.

Employment was seen keeping up with the pace of the increase in the number of the working-age population.

However, wage inflation was seen to have remained sluggish as growth was seen in a handful of industries, such as agriculture and construction.

This comes as New Zealand’s government raised the minimum wage in April, and is also proposing industrial reforms that could trigger faster pace of wage growth.

The private sector wage inflation was seen rising 0.6% on the quarter to an annualized pace of 1.4%. The increase came on the back of the recent hike to the minimum wage and the pay equity increase among care workers. Excluding these two components, wage inflation was seen rising just a mere 0.4% on the quarter.

While a record influx of migrants over the past years helped firms to choose from the work pool, the recent decline in immigration is expected to push wages up, as firms struggle to find workers.

The quarterly unemployment report comes ahead of the RBNZ’s monetary policy meeting later this week. No changes are expected as the central bank will outline its plans on meeting its newly formed dual mandate. The RBNZ has held the overnight cash rate steady at 1.75% since November 2016.

The RBNZ has however previously signaled that interest rates will remain unchanged to support the economy. As a result, this week’s RBNZ meeting is unlikely to surprise the markets.

The quarterly employment report was broadly in-line with the forecasts given by the RBNZ during the May monetary policy statement. However, the unemployment rate fell short of projections.

Growth may be slowing but firms are actively hiring and the economy is showing preliminary signs of a pickup. For the time being the RBNZ is expected to remain muted on the sidelines.

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