Price pressures: Security personnel on duty outside the entrance to the Reserve Bank of New Zealand in Wellington. The central bank has been raising rates at a record pace and predicts the economy will enter a recession this year. — Reuters
WELLINGTON: New Zealand’s labour market was a touch softer than expected in the fourth quarter, suggesting the central bank could slow the pace of its interest rate hikes.
The jobless rate ticked up to 3.4% against expectations it would hold at 3.3%, while quarterly employment growth of 0.2% missed the 0.3% estimate, data from Statistics New Zealand showed yesterday.
Wage inflation accelerated, but some measures of labour costs eased.
An acute labour shortage has been fuelling price pressures as employers lift pay rates to retain workers and even offer sign-on bonuses to attract new hires.
The Reserve Bank of New Zealand (RBNZ) is raising rates at a record pace and predicts the economy will enter a recession this year, which may see the labour market soften.
“We look to be at or close to a turning point for the labour market,” said Mark Smith, senior economist at ASB Bank in Auckland.
“The labour market remains tight, and worker shortages are widespread, but firms are now signalling they will be scaling back hiring as the economy slows.”
That may pave the way for the RBNZ to slow the pace of its rate increases.
The bank’s next policy meeting is on Feb 22, and most economists now predict it will revert to a 50-basis-point hike rather than repeat the 75-point move it delivered in November.
Investors now see almost no chance of a 75-point hike from the RBNZ this month, swaps data showed.
The bank has lifted the official cash rate by four percentage points since October 2021, taking it to 4.25%.
In its most recent forecast in November, it predicted the unemployment rate would drop to 3.2% in the fourth quarter, which would have matched a record low. The RBNZ also forecast that inflation would accelerate to 7.5%, but in fact it held steady at 7.2%.
Economists at the Bank of New Zealand and ASB lowered their cash rate forecasts in the wake of the labour market report.
The figures “were slightly on the softer side of our and, more importantly, the RBNZ’s expectations, so we are responding accordingly,” BNZ head of research Stephen Toplis said.
He now expects the cash rate to peak at 5% instead of 5.5%, but said the RBNZ won’t start cutting rates until 2024.
New Zealand closed its borders to foreigners for more than two years during the pandemic, cutting the supply of migrant workers many industries rely on.
Now they’re struggling to fill positions and meet demand for goods and services.
According to the Labour Cost Index, the 4.3% annual increase in non-government workers’ ordinary time wages was the highest since the data was first published in 1993. Still, the measure rose 1.1% from the previous quarter, less than the 1.2% gain economists expected.
Non-government workers’ average hourly earnings increased 0.9% from the previous quarter, while the annual increase slowed to 8.1% from a record 8.6%.
Annual employment growth was 1.3%, up from 1.2% in the third quarter but less than the expected 1.5%. — Bloomberg
