The latest unemployment rate and wage growth figures will likely only strengthen the Reserve Bank's resolve to stick to an "aggressive" approach to cash rate hikes, economists say.
StatsNZ on Wednesday morning reported that the unemployment rate has shifted upwards slightly from 3.2 percent in the March 2022 quarter to 3.3 percent in the June quarter. Meanwhile, wage growth is at 3.4 percent, the highest since 2008, but still well below the 7.3 percent annual inflation figure out last month.
Economists' reaction
That slight jump in the unemployment rate figure came as a surprise to most economists who were picking it to fall to around 3 percent.
Infometrics' principal economist Brad Olsen described it as a "rude shock" and said the unemployment rise could be driven by a jump "in the number of workers who didn't want to work because they were sick in the reference period".
"COVID-19 and winter illness seems to be limiting those wanting to get into work," he said.
The lack of growth in employment highlights the "challenges for the economy", particularly with issues getting workers "limiting economic expansion" for businesses, Olsen said.
"Competition for workers has therefore increased even further, with a wage war building as businesses are forced to put up higher offers to secure talent. The fast rises in wage measures reinforces this point, although the increases still don't match inflation."
Jarden investment strategist and economist John Carran agreed while employment growth is "subdued", the labour market remains "tight" with the biggest contributing factor being "weak growth in the labour force".
"The June labour market numbers further put the Reserve Bank of New Zealand (RBNZ) in a difficult position, with evidence employment growth is cooling and unemployment edging up but with strong wage growth continuing," Carran said.
"In the near-term, this is unlikely to cause the RBNZ to deviate from its aggressive Official Cash Rate (OCR) hikes. We expect a 0.5 percent OCR increase when the RBNZ next meets in two weeks."
The RBNZ in July decided to go ahead with its third consecutive 50 basis point jump to the OCR as it attempts to dampen demand in the economy and get inflation back down to between 1 and 3 percent, the target range.
The next Monetary Policy Statement (MPS) - which sets out the bank's OCR forecasts - is expected on August 17. The last MPS in May projected the OCR to peak at 3.9 percent over 2023 and early 2024 before slowly dropping. It's currently at 2.5 percent.
Carran said it is possible, however, that the RBNZ becomes less aggressive later in the year.
"Wages tend to lag changes in the unemployment rate," he said.
"If the current weakening trend in employment and rise in unemployment continues, we may soon see upward pressures on wages ease. Together with indications inflation pressures have peaked, slacker wage growth may cause the RBNZ to become less assertive in its monetary policy tightening later this year."
Olsen said the latest data will confirm the RBNZ's "stance of needing to continue raising the official cash rate briskly, with another 50 basis point increase in August".
"We'd say that a 75 basis point increase also needs to be on the table for consideration, if the Bank views that it needs to move quicker to address inflationary pressures."
ASB's senior economist Mark Smith said the sky-high inflation "looks to be increasingly entrenched and domestically driven".
Smith said that requires "forceful action and tough talk by the RBNZ" to get it back down to between 1 and 3 percent.
"The global scene is wobbly and NZ and global growth is slowing, but we expect the RBNZ to deliver a 50bp hike in the August MPS and 125bp hikes in total by year-end (3.75 percent OCR peak). A relaxation in tight labour market conditions is needed to cool inflation, and we have flagged a 2024 timeframe for when the OCR can move to less restrictive levels."
Politicians' reactions
Minister of Social Development and Employment Carmel Sepuloni said unemployment had stayed at a near record low thanks to the "Government's economic plan".
"This is very positive and shows our economic plan is working. Unemployment continues to be very low and firms are continuing to hire despite the uncertain global environment," she said.
"Wages are rising to help with cost of living pressures while the Government is doing its bit to support household incomes."
She said the unemployment rate was favourable to 3.6 percent in the US, 3.8 percent in Australia and the UK and 5.1 percent in Canada. The OECD average is 5 perent.
But both National and ACT have criticised the Government's management.
Nicola Willis, the National finance spokesperson, said wage growth continues to trail well behind inflation.
"It confirms the grim reality: that rapidly rising prices are pummelling hard-working Kiwis as their wages lag behind prices," she said.
"Labour's addiction to spending and economic mismanagement are two of the key drivers of inflation. Families are being let down by a Government whose only plan for dealing with the cost of living crisis is a temporary Band Aid payment."
ACT leader David Seymour said Labour "has managed to increase unemployment in the middle of an unprecedented labour crisis, while the Kiwis who are working are making less money".
"It's no wonder they're looking for greener pastures, today's figures show that New Zealanders are working harder and losing more money under Labour's watch," he said.
"According to today's figures, wages are up 6.4 per cent for the year, almost a full percentage point behind inflation at 7.3 per cent. In effect, people have taken a one per cent real pay cut over the last year."
