NZ jobless rate falls to 4.9pc but muted wage inflation to keep RBNZ on hold

New Zealand's unemployment rate fell more than expected. Photo / 123rf

New Zealand's unemployment rate fell more than expected in the first quarter, however the continuing influx of migrants kept wage inflation muted, adding to the view that interest rates are unlikely to budge any time soon.

The unemployment rate fell to 4.9 per cent in the three months ended March 31 from 5.2 per cent in the December quarter, Statistics New Zealand said. Economists had been expecting the unemployment rate to be 5.1 per cent. The New Zealand dollar rose to 69.60 US cents from 69.41 cents immediately before the figures were released.

Employment grew 1.2 per cent in the quarter to 2.54 million while the working-age population grew 0.7 per cent to 3.78 million. Economists had tipped a 0.8 per cent rise in employment in the quarter. The participation rate was an all-time high of 70.6 per cent as the working-age population continued to be bolstered by record migration.

New Zealand's swelling population means, however, any wage increases remained muted. While inflation is finally back in the central bank's 1 per cent-to-3 per cent target band, the lack of wage inflation is one factor that will likely keep interest rates on hold for some time to come.

The central bank's next rate decision and monetary policy statement - which will contain its interest rate forecasts for the next few years - are due to be published next Thursday. The bank is widely expected to keep rates on hold at 1.75 per cent so the main focus will be on whether it rejigs its forecast interest rate track. In its February statement the bank indicated rates would remain on hold until mid-2019.

"We suspect that wage growth will remain fairly muted for some time yet, which is one reason why we expect the RBNZ to leave the official cash rate at 1.75 per cent when it meets next Thursday, and keep it on hold for the remainder of this year and probably next year too," said Australia and New Zealand Capital Economics economist Kate Hickie.

Today's data show wage inflation remained muted, with the ordinary time private sector labour cost index increasing 0.4 per cent in the quarter. On the year, the ordinary private sector labour cost index was up 1.5 per cent. That's almost unchanged from three months earlier when the quarterly rate was 0.4 per cent for an annual rate of 1.6 per cent. The growth in private sector wages is the lowest it has been since the June 2010 quarter, Stats NZ said. Public sector wages rose 0.3 per cent in the March quarter and 1.7 per cent versus the same quarter a year earlier.

According to Stats NZ, total annual wage inflation, which includes both the public sector and the private sector, was 1.6 per cent higher on the year in the March quarter, unchanged from the prior quarter. It noted it is the first time since the September 2011 quarter that wage inflation was below consumer inflation.

"Employment growth still does not appear strong enough to push wages significantly higher across the economy in general. Wage pressures remain largely confined to tourism-related sectors and construction," said ASB Chief Economist Nick Tuffley. "We expect the RBNZ to be on hold for an extended period to late 2018," he said.

The quarterly employment survey, also released today, showed ordinary time private sector hours rose 0.3 per cent in the quarter to $27.82 for a 1.1 per cent annual gain. Ordinary time public sector wages rose 3.1 per cent to $37.81 and were up 4.3 per cent on the year.

Kiwibank chief economist Zoe Wallis also said the lack of wage growth is "hardly indicative of strong emerging inflation pressure," and she maintains her view that the central bank is likely to keep rates on hold until toward the end of 2018.

Accommodation and food services and construction drove the increase in the jobs and Stats NZ said construction employment was starting to build in areas other than Auckland and Canterbury. Over the quarter, the nation's largest city of Auckland showed relatively flat job growth and Waikato was the only region that had strong job growth with a "significant increase of people in the construction industry," Stats NZ said.

The recently added underutilisation rate, which seeks to measure the potential labour supply, was at 12.5 per cent versus 12.8 per cent in the December quarter. The decrease is due to a significant decrease of so-called "unavailable job seekers" who are people actively seeking work but not available to start immediately, Stats NZ said.