2 Feb 2022

Unemployment hits record low as wage inflation peaks

2:25 pm on 2 February 2022

Unemployment has fallen to a record low, while wage inflation has risen to its highest level in a decade.

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Official numbers show the jobless rate eased to 3.2 percent for the three months ended December from a revised 3.3 percent in the previous quarter.

This was slightly better than expected, but job growth was modest.

Private sector annual wage growth rose to 2.8 percent, the highest level since early 2009.

"The labour market continued to show the tightness we saw in the September 2021 quarter, with both unemployment and underutilisation rates remaining low," Stats NZ senior manager Becky Collett said.

The underutilisation rate, which is a measure of the slack in the labour market, was unchanged at 9.2 percent, the lowest since mid-2007.

Unemployment is defined as those actively seeking work, while underutilisation includes those wanting to work more hours or who could work but are not actively seeking a job.

The data was roughly in line with expectations for a steady unemployment rate, modest job growth, but a solid lift in wages.

The economy gained 3,000 jobs during the quarter and there were few changes to the make up of the market between full time and part time work, and employment rates for various groups.

ASB senior economist Mark Smith said the labour market was stretched, and would remain so for some time.

"We expect the labour market to tighten further and for wage inflation to accelerate over 2022 given the extremely tight labour market and rising cost of living."

He said the worsening Omicron outbreak might significantly disrupt labour supply and exacerbate the pressures within the labour market.

The Reserve Bank has a mandate of maximising sustainable employment, as well keeping inflation in check at around 2 percent.

Smith said the strength in wages would add to inflation pressures, with headline inflation already close to 6 percent, which would underpin the RBNZ raising rates through the year.

"A steady pace of 25 basis point hikes is expected each meeting, with the OCR (official cash rate) now peaking at 2.75 percent in early 2023."