NZ unemployment edges up in Q2, lack of wage inflation points to interest rates remaining on hold
By Tina Morrison
Aug 7 (BusinessDesk) – New Zealand’s labour market showed gradual improvement in the second quarter as unemployment
edged up, wage growth remained subdued and more people looked for work, signalling interest rates are likely to remain
on hold this year.
The unemployment rate increased to 6.4 percent in the three months ended June 30, higher than the 6.3 percent expected
by economists in a Reuters poll and coming off a three-year low of 6.2 percent last quarter. An extra 5,000 people were
looking for work and the participation rate increased 0.1 percentage point to 68 percent as private sector wages rose
0.4 percent, the Statistics department said.
Reserve Bank governor Graeme Wheeler last month said interest rates are likely to remain at a record low of 2.5 percent
this year with future hikes looming as growing momentum in the housing market and construction sector spills over into
inflation pressures. There were no indications in today’s release that higher wages were pushing up inflation,
“The key thing for markets and for the Reserve Bank in this release was signs of wage inflation,” said Dominick
Stephens, chief economist at Westpac Banking Corp. “The labour market is showing signs of ongoing gradual slow
improvement. There are still plenty of people unemployed, that means labour is pretty available and there is no sign
that wages are really picking up.
“The Reserve Bank will feel very comfortable with its current stance,” he said.
Wage pressures remained subdued, the statistics department said.
The labour cost index of private sector wages rose at an annual pace of 1.7 percent in the second quarter, down from 2
percent this time last year and below the 1.8 percent rate economists had expected. Wage rates for just over half of the
positions surveyed increased during the year. Of those that rose, the average increase is the lowest since the December
2000 quarter at 3.4 percent, the statistics department said.
“The main reason for very low wage growth is very low inflation,” said Westpac’s Stephens. “The cost of living is going
up very slowly and wages are going up just a little bit faster than that.”
Canterbury, which is being rebuilt following a series of earthquakes, continued to lead employment growth, with the
number of people employed up 5.5 percent over the year and the unemployment rate dropping to 4.4 percent from 6.5
percent in the June 2012 quarter.
In the year to the June quarter, salary and wage rate growth including overtime in the Canterbury construction industry
slowed to a 3.6 percent pace from 4.3 percent growth in the previous quarter. For the rest of New Zealand, wage growth
in the construction industry rose 2.1 percent.
“The labour market is strengthening very gradually and in particular the Canterbury rebuild has really ramped up,” said
Westpac’s Stephens. “The danger here is that we run out of workers to undertake the rebuild and that forces wages higher
and it could force wages higher for all businesses which would then force them to put their prices up and could create
an inflationary dynamic.”
“That is still a danger. Over the course of the next year we will be looking for those types of dynamics,” Stephens
said. In the near term, unemployment falling below 6 percent could spur wage acceleration.