Stuff
Unemployment remains near record lows.
Stronger-than-expected unemployment figures may mean higher interest rates, economists say, but the Budget later this month is likely to be a deciding factor.
The official unemployment rate in the three months to the end of March remained at 3.4%, Stats NZ said on Wednesday.
The strength of the labour market data appeared reflected in pay rates, with Stats NZ reporting that average annual ordinary time earnings rose 7.6% in the March quarter, up from an annual increase of 7.2% in December quarter.
Infometrics chief forecaster Gareth Kiernan said that made him more confident that there might be two official cash rate (OCR) increases to come, as the Reserve Bank battled to get inflation under control.
That would take the rate to a peak of 5.75%, rather than the one that most people were expecting.
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”It adds to the questions about how much the economy is genuinely slowing.”
He said it was not a catastrophic result for borrowers because there was nothing “off the charts”. “But the downward pressure seen on some of those retail rates, it still does suggest that’s a bit premature.”
In an update, Capital Economics said the result posed a risk to its view that the Reserve Bank would lift by another 25bps this month – and the increase could be larger.
It said the Reserve Bank was likely to be concerned that employment was beyond its maximum sustainable level.
“The Reserve Bank’s May policy decision will probably come down to the Government’s 2023 Budget and the extent to which it adds to demand-side pressures on the economy.”
STUFF
Finance Minister Grant Robertson faces questions about near-record-low unemployment, falling house prices and mortgage rate concerns.
At ASB, senior economist Chris Tennent-Brown said the unemployment data affirmed his view that there was one more OCR increase to come,
”There’s cause for a bit of upward pressure on short-term rates still. Longer-term rates are going to be a function of all the stuff that’s going on globally.”
He said longer-term fixes had come down almost one percentage point compared to their peak. Banks have cut their longer-term rates in recent weeks.
“The Reserve Bank might try to do some talking on that – it will need friends in other central banks to be talking about how long rates will stay high for it to have an influence.”
ANZ senior economist Miles Workman said it was the Budget that would matter.
“I don’t think today’s labour market data are a game changer for the Reserve Bank. We continue to expect a 25bp hike in May. The next big event is the upcoming Budget, where further fiscal stimulus may end up resulting in additional inflationary pressures and therefore renewed upwards pressure on interest rates.”
