BNZ: RBNZ Will Not Tolerate Unemployment Sticking at These Levels

BNZ forecast that the “HLFS measure of employment will register a quarterly increase of 0.4% (1.6% Y/Y). This would be enough to nudge the unemployment rate down to a record low of 3.1%, from 3.3% in Q3, based on the participation rate staying at the 71.7% record high it jumped to in Q3.”

• “That these types of numbers demonstrate an exceptionally tight labour market is evidenced by the degree of wage inflation coming through already. The private-sector Labour Cost Index (LCI), including overtime, reported annual inflation of 3.9% in Q3. We expect that to strengthen to 4.2% in Q4, based on a quarterly advance of 1.0%.”
• “As a proxy of unit wage costs, that’s high. In terms of nominal wage measures, we anticipate Q4 average hourly earnings, from the Quarterly Employment Survey (QES), to post annual inflation of 8.6%, matching the result of Q3. And if you think that’s chunky, note the RBNZ expects all of 9.1% y/y on QES wages and 4.4% on the LCI. Those might be hard to beat.”
• “It’s a reminder that the RBNZ already forecasts a significant amount of wage inflation, for the coming years, but also that it’s based on the expectation the unemployment rate soon starts to climb. It suggests the Reserve Bank will have next to no tolerance for the unemployment rate remaining anywhere near as low as it was in Q322 (3.3%).”