VIEW: ANZ Sees February Hike As “Real Possibility”

The NZ labour market surprised ANZ with its strength but it notes that the rises in the underemployment and underutilisation rates signals that “spare capacity continues to emerge” but “more gradually than expected”. While wages growth eased, it was less than predicted and has some “way to go to be consistent with inflation sustainably at target”. With a number of small data surprises to the upside, ANZ sees a 25bp hike in February as a “very real possibility”.

• “Loosening in the labour market should support a moderation in domestic inflation over 2024, but progress has been a little slower than we and the RBNZ had anticipated. Our estimates of the RBNZ’s labour capacity suite ticked up slightly, rather than the anticipated loosening. Forward-looking indicators are mixed but overall suggest ongoing loosening.”
• “The RBNZ has had small but unwelcome upward surprises on consumption growth, non-tradable inflation, QSBO capacity indicators, the labour cost index and now labour market capacity indicators.”
• “It’s not been one-way traffic, and things are moving in the right direction overall. But the RBNZ made it clear in November that the right direction of travel isn’t sufficient. A 25bp hike later this month has become a very real possibility, and RBNZ Governor Orr’s speech on 16 February could raise the market-perceived probability of a hike further (now around 20%, up from 5% before the data).”