The jobless rate hitting its highest level since late 2015 keeps the case for RBNZ tightening intact but reinforces the view that any further hikes are likely to come at a gradual pace rather than an aggressive one, given how little wage pressure is coming from an increasingly slack labour market. The rise in the underutilisation rate to 13.8% from 12.9% adds to that picture, suggesting spare capacity in the workforce is broader than the headline unemployment figure alone implies, a point likely to support the more cautious camp on the timing of the next move. Markets are still pricing a high probability of a hike to 2.75% at the RBNZ’s September 2 meeting, but the combination of subdued wage growth and rising slack could keep alive the case for a delay to October, a divergence that is likely to keep the kiwi dollar sensitive to incoming data between now and the decision. The data also lands as a political complication for the government months out from a general election, adding a layer of domestic political risk to the currency and rates outlook.
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Earlier:
- NZ commodity prices post biggest monthly fall since 2022 on dairy slide
- New Zealand unemployment rate jumps to 5.6% vs. 5.4% expected and 5.3% prior
New Zealand’s jobless rate climbed to its highest since 2015 as more people entered the workforce than the economy could absorb, keeping wage pressures subdued and the RBNZ on a gradual tightening path.
Summary:
- Unemployment rate rose to 5.6% in the June quarter, above the 5.4% forecast and up from an upwardly revised 5.4% the previous quarter, the highest level since late 2015
- Employment rose 0.5% in the quarter, beating forecasts, but was offset by the participation rate jumping to 70.7%, its highest in over a year
- The underutilisation rate, covering the unemployed and those wanting more hours, rose to 13.8% from 12.9% the previous quarter
- Annual wage growth held at a subdued 2.0%, with private sector wages up slightly to 2.1%, both well below inflation
- Finance Minister Nicola Willis described April, May and June as difficult months for many employers
- The RBNZ lifted its official cash rate a quarter point to 2.5% in July to counter inflation pressures partly driven by higher global oil prices, with annual inflation at a two and a half year high of 4.1% in the June quarter
- Markets imply a 90% chance of a further RBNZ hike to 2.75% at its September 2 meeting, with some analysis suggesting the central bank could instead wait until October given labour market slack
- The kiwi dollar dipped following the release of the jobs data
New Zealand’s unemployment rate climbed to a decade high of 5.6% in the June quarter, data from Statistics New Zealand showed Wednesday, as a sharp rise in the number of people looking for work outweighed gains in employment. The reading topped market forecasts of 5.4% and marked the highest jobless rate since late 2015, landing as a setback for the centre-right government months ahead of a general election. Finance Minister Nicola Willis acknowledged the difficulty of the period, saying April, May and June had been difficult months for many employers and that it had been hard going for New Zealanders looking for work in that environment.
Employment growth actually beat expectations, rising 0.5% in the quarter, but that gain was more than offset by a jump in the participation rate to 70.7%, its highest level in over a year, as more people entered or re-entered the labour force than the economy was able to absorb. The underutilisation rate, which captures both the unemployed and those who would like to work more hours, rose to 13.8% from 12.9% in the previous quarter, underscoring the extent of spare capacity building in the labour market. With that much slack evident, annual wage growth held at a subdued 2.0%, with private sector wages edging up slightly to 2.1%, both comfortably below the current pace of inflation.
The data lands at a delicate moment for the Reserve Bank of New Zealand, which lifted its official cash rate a quarter point to 2.5% in July in an effort to quell inflationary pressures driven in part by higher global oil prices. Annual inflation climbed to a two and a half year high of 4.1% in the June quarter as fuel prices jumped, pushing well above the central bank’s 1% to 3% target range. RBNZ policymakers have signalled further rate increases will be needed given that current rates remain well below most estimates of the neutral rate, which are generally clustered around 3.0% to 3.25%.
Markets continue to imply a roughly 90% probability of a further hike to 2.75% at the RBNZ’s next meeting on September 2, though the scale of spare capacity revealed in Wednesday’s labour force survey has led some to argue that wage growth does not currently pose a homegrown threat to inflation, weakening the case for an aggressive tightening cycle. That view holds that the June quarter data should reinforce a gradual approach to withdrawing policy accommodation, with some now expecting the RBNZ to wait until October before delivering its next hike, even as markets continue to price a strong chance of action as soon as September. The kiwi dollar dipped following the release of the jobs figures, reflecting the market’s initial read that labour market slack could ultimately temper the pace of further tightening even as headline inflation remains elevated.
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RBNZ next meeting 02 September:
This article was written by Eamonn Sheridan at investinglive.com.