Economists expect ongoing wage pressures
ANZ economists are expecting labour market statistics for the third quarter, set to be released on Nov. 1, to show further loosening, but said the delayed impact on wages suggest inflationary pressure stemming from the labour market has further to run.
At its latest Quarter Labour Market Preview, ANZ predicted the unemployment rate to have lifted by 0.3pts to 3.9% in the September quarter, as a 0.4% q/q (3.1% y/y) rise in employment was offset by a strong 0.6% quarterly rise in the working-age population and a 0.1pt increase in the labour force participation rate to 72.5%.
The report, titled “A gradual ascent”, showed that despite the easing in capacity pressures this year and wage growth appearing to have peaked, the delayed response of wages is expected to lead to ongoing wage pressures for some time.
ANZ economists are now expecting the private sector Labour Cost Index to have increased by 1 q/q (4.2% y/y), and private sector average hourly earnings (ordinary time) by 2% q/q (7.1% y/y).
Sharon Zollner (pictured above), chief economist, said despite the labour market continuing to ease toward a level of stability consistent with stable inflation outcomes, this alone might not satisfy the Reserve Bank.
“The RBNZ ultimately requires a sustained period of employment below sustainable levels to return core inflation to target,” Zollner said. “That’s hardly an appealing proposition.
“But if the labour market remains beyond sustainable levels for too long, we run the risk of inflation normalising above target, via stubborn inflation expectations becoming embedded in wage-and price-setting behaviour. In the long run, that’s likely to be far costlier for the economy and result in worse employment outcomes for households.”
ANZ is expecting the labour market to transition to an outright disinflationary state early next year.
According to the economists, the Q3 labour market data will not likely be a game-changer for the RBNZ’s November meeting.
“We don’t see next week’s data as a smoking gun prompting the RBNZ to restart hikes at the November meeting, but nor do we see it as signalling ‘job done,'” Zollner said.
“We remain unconvinced that the labour market is turning fast enough to see domestic inflation dissipate in a reasonable timeframe. We think that will require further tightening, with a 25bp hike in February.”
Click here to read the full ANZ report.
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