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Bullish Extension


Heading North


(M1) Needle Still Points North


(N1) Bullish Conditions Remains Intact

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Some sell-side commentary in the wake of the Q1 labour market report:

  • ANZ: The employment side of the RBNZ's dual mandate is in good shape, and this labour market release raises the possibility of the labour market returning to full employment sooner than expected. But it's not clear what "full employment" is at present.
  • ASB: We expect wage growth will lift over the coming year and the RBNZ will see growing evidence of the labour market recovering toward "maximum sustainable employment". Nonetheless, the labour market still has some way to go, with the rate of unemployment still above pre-pandemic levels and the underutilisation rate also elevated. The lift in wage inflation is merely in line with the RBNZ's forecasts and it remains appropriate for the RBNZ to keep monetary conditions stimulatory until the global pandemic is brought under control and NZ can reopen its border.
  • BNZ: The Reserve Bank looks at the labour market through a maximum sustainable employment lens rather than the NAIRU, which is the unemployment lens, but you would expect the two measures to broadly mirror each other. And it's worth remembering that New Zealand's supply of labour will remain constrained until at least next year when borders should start to open wider than they currently are. Be that as it may, the RBNZ has suggested that, for it to be convinced we are at maximum sustainable employment, there will need to be clear evidence wages are in the ascendancy. At this stage there is no such evidence.
  • Westpac: The implication is that while we're still below what the RBNZ would consider to be 'maximum sustainable employment' according to its mandate, the gap is gradually narrowing.