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New Zealand wage growth slows to 0.7%q/q in 1Q

New Zealand wage growth slows to 0.7%q/q in 1Q

Growth in private sector labour costs (as measured by the LCI) in New Zealand increased 0.7%q/q in 1Q (JPMorgan 0.7%, consensus 0.9%), after surging 1.1% in 4Q, which marked the largest quarterly gain on record. Growth in the all sector labour cost index stood at 0.8%q/q in the March quarter, compared to 1.0% in the previous three months.

Private sector wage growth is being supported by a tight labour market and a net outflow of skilled workers, although it is expected to weaken in coming quarters as firms shed human capital to cut costs as economic momentum slows to a standstill. Even so, we maintain our view that the RBNZ will leave interest rates steady at a record 8.25% this year, as inflationary pressures remain widespread.

The RBNZ has said in recent commentary that tight labour market conditions are keeping upside pressure on wages. Inflationary pressures already are widespread, owing to high commodity prices, and rising energy and food prices. Furthermore, the fiscal stimulus in the pipeline ahead of the election (to be held later this year) will put further upside pressure on inflation, meaning that the RBNZ will have little scope to ease monetary policy anytime soon.

The employment print on Thursday should confirm that the labour market is starting to loosen. The report should show the unemployment rate rising from 3.4% in 4Q to 3.6% in the March quarter. Still, despite the anticipated rise in the jobless rate, labour market conditions remain historically tight given that the Kiwi labour force continues to lose skilled workers abroad, keeping the pool of available workers low.

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