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New Zealand Jobless Rate Unexpectedly Rises to 3.3% From Record Low

·2 min read

(Bloomberg) -- New Zealand unemployment unexpectedly rose from a record low in the second quarter but wages rose at the fastest pace in 14 years, suggesting the central bank may need to keep raising interest rates aggressively to tame inflation.

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The jobless rate climbed to 3.3% from 3.2% in the first quarter, which was the lowest level since records began in 1986, Statistics New Zealand said Wednesday in Wellington. Economists expected a decline to 3.1%. Employment was unchanged from the previous three months, while annual wage inflation accelerated to 3.4%, the fastest since 2008.

Labor shortages and capacity constraints are contributing to soaring inflation in New Zealand, prompting the Reserve Bank to rapidly remove monetary stimulus. The RBNZ is tipped to undertake a fourth consecutive half-percentage rate hike later this month, taking the Official Cash Rate to 3%, as it seeks to curb demand in the economy.

“The labor market still looks extremely tight, with employment well above its maximum sustainable level,” said Mark Smith, senior economist at ASB Bank in Auckland. “Wage inflation looks to be stirring. The distributional figures showed a broadening front of wage increases, pointing to a wage-price spiral unfolding.”

The kiwi dollar fell after the employment report. It bought 62.28 U.S. cents at 11:10 a.m. in Wellington, down from 62.55 cents beforehand.

While the RBNZ doesn’t have a numerical goal for employment growth or the jobless rate, it has said employment is above the maximum sustainable level it is required to achieve. At 7.3% in the second quarter, inflation is also well in excess of the 1-3% band the central bank targets.

Recession Risk

The RBNZ’s policy tightening has driven down property prices and eroded business and consumer confidence, raising the possibility of a recession. But the labor market remains tight because of an absence of migrant workers. The border only fully reopened this week, more than two years after it was closed at the outset of the pandemic.

The economy failed to add jobs for a third consecutive quarter, with first-quarter employment revised to unchanged. Economists expected 0.4% growth in the second quarter.

Annual employment growth was 1.6% against the median forecast of 2.3% and down from a revised 2.7% in the first quarter.

The participation rate dropped to 70.8% from 70.9% in the three months through March.

Statistics New Zealand said the underutilization rate, which is a broader gauge that includes employed people seeking additional hours, fell to 9.2% from 9.3% in the first quarter.

Ordinary time wages for non-government workers rose 1.3% in the quarter, the statistics agency said. Economists expected 1.1%.

(Updates with economist comment in fourth paragraph)

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