WELLINGTON: New Zealand unemployment unexpectedly rose from a record low in the second quarter, but wages rose at the fastest pace in 14 years, suggesting the central bank may need to keep raising interest rates aggressively to tame inflation.
The jobless rate climbed to 3.3% from 3.2% in the first quarter, which was the lowest level since records began in 1986, Statistics New Zealand said yesterday. Economists expected a decline to 3.1%.
Employment was unchanged from the previous three months, while annual wage inflation accelerated to 3.4%, the fastest since 2008.
Labour shortages and capacity constraints are contributing to soaring inflation, prompting the Reserve Bank of New Zealand (RBNZ) to rapidly remove monetary stimulus.
The RBNZ is tipped to undertake a fourth consecutive half-percentage rate hike later this month, taking the official cash rate to 3%, as it seeks to curb demand in the economy.
“The labour market still looks extremely tight, with employment well above its maximum sustainable level,” said Mark Smith, senior economist at ASB Bank in Auckland.
“Wage inflation looks to be stirring. The distributional figures showed a broadening front of wage increases, pointing to a wage-price spiral unfolding.”
While the RBNZ doesn’t have a numerical goal for employment growth or the jobless rate, it has said employment is above the maximum sustainable level it is required to achieve.
At 7.3% in the second quarter, inflation is also well in excess of the 1% to 3% band the central bank targets.
The RBNZ’s policy tightening has driven down property prices and eroded business and consumer confidence, raising the possibility of a recession.
But the labour market remains tight because of an absence of migrant workers.
The borders only fully reopened this week, more than two years after they were closed at the outset of the pandemic.
The economy failed to add jobs for a third quarter, with first-quarter employment revised to unchanged. Economists expected 0.4% growth in the second quarter.
Annual employment growth was 1.6% against the median forecast of 2.3% and down from a revised 2.7% in the first quarter.
The participation rate dropped to 70.8% from 70.9% in the three months through March.
The statistics office said the underutilisation rate, which is a broader gauge that includes employed people seeking additional hours, fell to 9.2% from 9.3% in the first quarter.
Ordinary time wages for non-government workers rose 1.3% in the quarter, the statistics agency said. Economists expected 1.1%. — Bloomberg