VIEW: ASB Sees Risk Stronger Labour Data Delays Easing Cycle

NZ Q4 employment and wages data were stronger-than-expected and the unemployment rate lower than the RBNZ had forecast. It came in at 4.0% after 3.9% in Q3 and below Bloomberg consensus at 4.3% and RBNZ at 4.2%. ASB observes that the data showed “only modest cooling”. It is also concerned about the “plateauing” of labour cost growth and that rate cuts will start later than its August forecast.

• “Labour cost growth looks to be plateauing at levels considerably above the top of the 1-3% inflation target range, with distributional figures providing little evidence that wage pressures are cooling.”
• “The labour market lags the cycle, and the robustness of the Q4 figures could be the last gasp before the labour market conclusively turns. We continue to expect more labour market slack to emerge over 2024 and for the unemployment rate to end the year closer to 5%.”
• “This should further temper wage increases and significantly dampen pressures on core inflation. Nonetheless, the RBNZ will be wary of the risk that labour costs do not cool as quickly as to deliver sub 3% inflation on a sustained basis. This could see OCR cuts delayed beyond our August 2024 start date.”