VIEW: Westpac: Wage Pressures Key

In their quick reaction piece, Westpac note that "the RBNZ appears to have been moved not by stories of rising inflation, as the market might have expected, but by concerns that the labour market is much tighter than it previously thought. It is forecasting a sustained lift in wage pressures, and is less prepared to accept an overshoot on its employment mandate."

• "We're less sure about such a sustained lift in wage growth, though we acknowledge that it's an unusual environment. The closure of the international borders in response to Covid-19 has closed off the flow of both skilled and unskilled migrant workers that employers would normally have expected. But it's not clear that this will spur higher wage growth at a national level, and its persistence will depend on when and how migration flows resume."
• "The RBNZ's OCR projection suggests that the first hike could occur in the September quarter next year. By that date, the RBNZ expects the inflation rate to be 1.5% and the unemployment rate to be 4.6% – almost the same as where they are today. The case for an OCR hike will depend crucially on whether evidence of a widespread lift in wage pressures has emerged by then."