Latest data not enough to make RBNZ relaxed about future inflation
Despite fresh data from Stats NZ showing a softening in the labour market and an easing in wage growth, independent economist Tony Alexander (pictured above) said these are not enough for the Reserve Bank to feel relaxed about the path ahead for inflation.
Unemployment rate on the rise
The headline-grabbing number is the unemployment rate, which increased to 3.9% in the September quarter, up from 3.6% in the June quarter and significantly higher than the 3.2% seen a year ago.
Despite the uptick, Alexander said the rate is still relatively low and far from the anticipated peaks of around 5.4% projected by RBNZ and Treasury in the coming years due to economic slowdown.
“So, we should expect the unemployment rate to keep climbing over the coming year,” he said.
Decline in the number of people employed
In the last quarter, the number of people in work dropped by 0.2% – the first decrease since mid-2022. It’s important to note, though, that a decline in job numbers does not necessarily imply an extended period of job losses. Nonetheless, the trend suggests a weak result for the December quarter.
Alexander said the decrease in job numbers seems unusual given the significant influx of 110,000 migrants to New Zealand over the past year. This raises questions about the accuracy of the Household Labour Force Survey, which may be downwardly biased in estimating the unemployment rate and job changes.
“We economists always take the HLFS data with a large grain of salt and quickly move on to gauging the state of the labour force with other measures. These include the ANZ’s Business Outlook survey which is showing a trend rise in business hiring intentions,” he said.
Wages growth shows minor slowdown
Wages growth in the private sector, as revealed by the Quarterly Employment Survey, showed that average hourly earnings grew by 2% in the September quarter. The figure, Alexander said, is essentially the same as the 1.9% growth in the June quarter and the 2.1% growth in the March quarter, but down from 2.6% a year earlier.
“There is not enough of a decline underway in wages growth for the Reserve Bank to feel that the surge in net migration inflows is having a pleasingly strong negative impact on the pace of wages growth,” he said.
Another measure of wages growth, the Labour Cost Index, focusing on unchanged job positions, showed a similar trend. It reported a rise of 1.1% in the September quarter, down from 1.6% in the June quarter, and the annual rate has eased to 5.7% from 6.1% three months ago.
“This measure also is easing,” Alexander said. “But again, the pace is slow and at 5.7% the annual change is well above the average of 3.2%.”
Overall, the economist said the data revealed weakening job market strength and a slowdown in wage inflation, but with the unemployment rate at 3.9%, it is still too low to ensure that inflation will drop below the current 5.6%. Similarly, the private sector wage growth numbers at 7.1% and 5.7% remained higher than desired for RBNZ.
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