NZ’s unemployment rate likely to remain unchanged at 4.5 pct in Q3, wage inflation seen modest: ANZ Research

New Zealand’s unemployment rate is expected to have been unchanged at 4.5 percent in Q3, consistent with continued tightness in the labour market. Further modest tightening is expected from here, according to the latest report from ANZ Research.

Wage inflation is expected to have been modest in Q3 following a minimum-wage induced boost in Q2. But over the medium term, the underlying wage pulse is expected to improve gradually.

Strength in the labour market is supporting household sentiment, but the recent moderation in firms’ employment intentions poses downside risk to both employment and spending. Such risks will keep the Reserve Bank of New Zealand (RBNZ) cautious.

Consistent with stability in the unemployment rate, the employment growth is expected to have matched growth in the labour force in Q3. However, HLFS employment data has been volatile of late and is an important source of uncertainty and potential volatility in next week’s release, the report added.

Over the medium term, the labour market is expected to tighten modestly, with gradual declines in the unemployment rate expected as the migration cycle eases and population growth slows. We expect employment growth will remain firm but not spectacular, consistent with our expectation that the economy will struggle to grow above trend.

"In coming years, nominal wage inflation is expected to increase gradually, with the labour market expected to tighten a little and lingering weakness expected to dissipate slowly. Future increases in the minimum wage are expected to provide a further boost, with planned increases to $20 per hour by 2021. We expect this will boost LCI wages by about 0.2 percentage point each year, including some spill-over effects to pay discussions more generally," the report commented.