VIEW: Westpac Expects Feb Hike From Stronger Q4 Labour/CPI Data

Westpac observed the surprising drop in the participation rate, especially given high immigration, but looked through that to the unemployment and underutilisation rates which it said showed “an unambiguous easing of conditions in the labour market”. It thinks that the Q3 data was close enough to the RBNZ’s own forecasts and so another hike in November is unlikely.

• Westpac noted that “employment growth was weaker than the RBNZ had forecast – at least at face value – and the unemployment rate rose by slightly above the 3.8% figure that the RBNZ had forecast. In addition, growth in the private sector LCI was also 0.1ppts less than the RBNZ had forecast.”
• “Together with the outcome of the December quarter CPI (released mid-January), ongoing developments in the labour market will have a significant bearing on whether the RBNZ continues to take the view that its inflation projections remain broadly on track. More robust than expected inflation and/or labour market data would increase the likelihood that the RBNZ opts to lift the OCR at the February 2024 MPS meeting (as is Westpac’s forecast).”