New Zealand jobless rate unexpectedly rises to 3.3% from record low

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 per cent from 3.2 per cent in the first quarter, which was the lowest level since records began in 1986, Statistics New Zealand said on Wednesday (Aug 3) in Wellington. Economists expected a decline to 3.1 per cent. Employment was unchanged from the previous 3 months, while annual wage inflation accelerated to 3.4 per cent, the fastest since 2008.

Labour shortages and capacity constraints are contributing to soaring inflation in New Zealand, prompting the Reserve Bank 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 per cent, 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."

The kiwi dollar fell after the employment report. It bought 62.28 US cents at 11.10 am in Wellington, down from 62.55 US cents beforehand.

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 per cent in the second quarter, inflation is also well in excess of the 1-3 per cent band the central bank targets.

Recession risk

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 border only fully reopened this week, more than 2 years after it was closed at the outset of the pandemic.

The economy failed to add jobs for a third consecutive quarter, with first-quarter employment revised to unchanged. Economists expected 0.4 per cent growth in the second quarter.

SEE ALSO

New Zealand house prices sink most since global financial crisis

Annual employment growth was 1.6 per cent against the median forecast of 2.3 per cent and down from a revised 2.7 per cent in the first quarter.

The participation rate dropped to 70.8 per cent from 70.9 per cent in the 3 months through March.

Statistics New Zealand said the underutilisation rate, which is a broader gauge that includes employed people seeking additional hours, fell to 9.2 per cent from 9.3 per cent in the first quarter.

Ordinary time wages for non-government workers rose 1.3 per cent in the quarter, the statistics agency said. Economists expected 1.1 per cent. BLOOMBERG