WELLINGTON Reuters -- New Zealand's jobless rate held just above historic lows and wage inflation hit a three-decade high, but there are signs that the labour market is easing, adding to the expectation that the central bank will pull back its interest rate hike this month.
Data released by Statistics New Zealand on Wednesday highlighted the country's tight labour market, with wage inflation, labour force participation and employment all at their highest in more than three decades.
However, fourth quarter inflation and employment have undershot the RBNZ November forecasts of the Reserve Bank of New Zealand, and some economists are paring back expectations that the central bank will increase the cash rate by a record 75 basis points bps when it meets in February.
At the end of last year, a bit of steam came out of the labour market, according to Kiwibank economists.
The unemployment rate rose to 3.4% in the December quarter, slightly higher than the forecast of 3.3% from economists.
Wage growth was strong in the quarter, with the private sector labor cost index LCI excluding overtime recording a 4.1% lift on the year, slightly below a forecast 4.3% increase.
RBNZ has been aggressive in its efforts to dampen inflation and in November hiked the official cash rate by 75 bps to 4.25% and promised further increases.
The overnight indexed swaps now imply a peak for the cash rate of 5.19%, down from 5.28% on Tuesday.
ASB Bank and Bank of New Zealand expect the central bank to move only by 50 bps rather than 75 bps in February, following a similar downgrade by ANZ and Kiwibank last week.
The need for outsized OCR official cash rate hikes appears less urgent, ASB Bank said, adding that there remains a fine line between the bank hiking by 50 bps and 75 bps.
Indicted indicators are beginning to show that there is a softening in the labour market for the current quarter, and economists expect the unemployment rate to start later in 2023.
As we look to 2023, timely indicators point to a significant easing of labour market pressures, with job ads, monthly filled jobs growth and employment intentions all easing significantly in recent months, according to ANZ economists.