NZ Unemployment Rate Falls As NZD Impacted By Other Disappointment

The key quarterly labour market data roundup for New Zealand has been released as unemployment rate fell to 3.2 per cent in the fourth quarter, according to data released by Statistics New Zealand on Wednesday. While this beat expectation, it’s not moved the needle on the NZD because the rest of the data was disappointing.

As for the monetary policy implications; the Reserve Bank of New Zealand had viewed the labour market as beyond maximum sustainable employment back in the November MPS. Despite the disappointments today, this is still a highly inflationary labour market, with workers now a scarce commodity, and employers having to pay big bucks to fill vacancies.

That will only reinforce the upwards trend in domestic inflation pressures. Inflation is a challenge for household budgets –and it’s particularly hard for lower-income households, for whom essential spending on food, shelter, and transport takes up the bulk of their disposable income. Real wages were likely still falling in Q4 –putting further cash-flow pressure on households, who now need to work longer to be able to afford the same standard of living as one year ago.

Higher interest rates are needed to put a lid on surging domestic inflation pressures. And we think that means the RBNZ will lift the OCRin 25bp increments to 3% in April 2023 (assuming no unforecastable shocks knock the economy off course.

Statistics New Zealand releases employment data on a quarterly basis. The statistics shed a light on New Zealand’s labor market, including unemployment and employment rates, demand for labor and changes in wages and salaries. These employment indicators tend to have an impact on the country’s inflation and Reserve Bank of New Zealand’s (RBNZ) interest rate decision, eventually affecting the NZD. A better-than-expected print could turn out to be NZD bullish.