- The unemployment rate in New Zealand was more than forecast in the second quarter, as the economy's recovery boosted hiring and began to stoke wage inflation The kiwi currency rose as people bet that the central bank could increase interest rates in two weeks.
The joblessness rate rose from 4.6% to 4% in the first quarter, Statistics New Zealand said Wednesday in Wellington. Economists expected 4.4%. Employment rose from the last three months by 1%. Private sector, ordinary time wages increased the most in 13 years.
In the second quarter, annual inflation rose to 3.3%, surpassing the target range of 1 - 3% by the central bank.
'We've flown past full employment and the economy is becoming quite overheated, said Sharon Zollner, Chief Economist at ANZ Bank New Zealand in Auckland. 'The RBNZ needs to hike the OCR timely to get on top of this.
The kiwi dollar went up after the report. It purchased 70.58 U.S. cents at 2: 45 p.m. in Wellington from 70,24 cents immediately before the release. The two-year swap rate rose 11 basis points to 1.25% - the highest since late 2019 - level of trade.
Investors lifted bets on rate increases, with a quarter-point hike currently priced in for the RBNZ's next review scheduled Aug. 18 and at least one more expected by the end of the year. Economists at JPMorgan said that they now expect three rate increases this year, taking the cash rate from 0.25% to 1%.
The data show the RBNZ is well behind the curve. Things are going to get tighter, says Stephen Toplis, head of research at BNZ Wellington. The RBNZ, which is required to support maximum employment and achieve price stability, began reducing quantitative stimulus last month by stopping quantitative easing, saying economic conditions since late 2020 had been consistently stronger than anticipated.
Yesterday Governor Adrian Orr said spending had returned to more normal levels and the Monetary Policy Committee 'needs to think about when and how we would return interest rates to pre-Covid levels.
New Zealand is in the vanguard of developed-world central banks which are beginning to normalize policy and is expected to become one of the first to raise rates in the aftermath of the pandemic. South Korea has also signaled it will lift borrowing costs for this year.
Still, the Federal Reserve indicated last week that there is some way to go before it starts to scale back bond buying, while Australia yesterday said it doesn't expect to raise rates after 2024.
Employment rose for the third straight quarter after a slump in mid- 2020 and also rose 1.7% from a year earlier. Economists forecast 1.2% annual growth. The participation rate increased from 70.4% to 70.5% for the three months through March, matching economist's projection.
Statistics New Zealand said the underutilization rate, which is a broader gauge that includes employed persons seeking additional hours, fell to 10.5% from 12.1% in the first quarter.
The standard time wages for non-government workers rose 0.9% in the quarter, the highest since 2008, the Statistically announced. From a year earlier, wage growth picked up to 2.2% from 1.6% in the 12 months through March.
