By Wayne Cole
SYDNEY, Aug 5 (Reuters) – New Zealand’s jobless rate climbed to a decade-high in the June quarter as a sharp rise in the number of people looking for work outweighed gains in employment, a sign of slack that could limit how high interest rates might rise this year.
Data from Statistics New Zealand out on Wednesday showed the unemployment rate rose to 5.6%, from an upwardly revised 5.4% the previous quarter. That was the highest since late 2015 and topped market forecasts of 5.4%.
The Reserve Bank of New Zealand has flagged more rate hikes will be needed to remove stimulus from the economy and restrain inflation, so markets remain set for a hike in September.
Yet the scale of spare capacity in the labour force means wages are not a homegrown threat to inflation, arguing against an aggressive rate cycle.
“All told, the June labour force survey should reinforce the RBNZ’s gradual approach to withdrawing policy accommodation,” said Abhijit Surya, a senior APAC economist at Capital Economics.
“Accordingly, we’re sticking to our view that it will wait until October before hiking rates again, even though markets are expecting a 25bp hike as soon as September.”
The Reserve Bank of New Zealand lifted its official cash rate a quarter point to 2.5% in July as it sought to quell inflationary pressures in part driven by higher global oil prices.
Annual inflation climbed to a 2-1/2-year high of 4.1% in the June quarter as fuel prices jumped, taking it well away from the central bank’s target range of 1% to 3%.
RBNZ policymakers have made it clear further rises will be needed as rates are well below most estimates of neutral, which are clustered around 3.0% to 3.25%.
Markets still imply a 90% chance of a hike to 2.75% at the RBNZ’s next meeting on September 2, and see rates reaching a peak of 3.5% by the middle of 2027.
The kiwi dollar did dip 0.2% on the jobs data to $0.5879, while a key 2-year swap rate fell 6 basis points to 3.6351%.
Employment growth actually beat forecasts in the June quarter with a rise of 0.5%, but that was offset by a jump in the participation rate to its highest in over a year at 70.7%.
In another sign of spare capacity, the underutilisation rate, which measures those unemployed and those who would like to work more hours, popped up to 13.8% from 12.9% the previous quarter.
With plenty of slack in the labour market, annual wage growth stayed at a subdued 2.0% and the private sector saw a small rise to 2.1%, both well under inflation.
(Reporting by Wayne Cole; Editing by Tom Hogue and Sam Holmes)
