(Bloomberg) -- New Zealand’s unemployment rate fell more than forecast in the second quarter as the economy’s recovery boosted hiring and began to stoke wage inflation. The kiwi dollar rose as traders increased bets on higher interest rates.
The jobless rate fell to 4% from a revised 4.6% in the first quarter, Statistics New Zealand said Wednesday in Wellington. Economists expected 4.4%. Employment rose 1% from the previous three months. Private sector, ordinary time wages increased the most in 13 years.
The labor market report is the latest sign that the economy may be overheating, and that the Reserve Bank could start to raise interest rates as soon as this month to keep a lid on price pressures. Annual inflation surged to 3.3% in the second quarter, breaching the central bank’s 1-3% target range.
The kiwi dollar climbed after the report. It bought 70.43 U.S. cents at 10:54 a.m. in Wellington from 70.24 cents immediately before the release.
Investors lifted bets on rate increases, with a quarter-point hike now fully priced in for the RBNZ’s next review on Aug. 18 and at least one more expected by the end of the year.
The RBNZ, which is required to support maximum employment as well as stable inflation, began reducing monetary stimulus last month by ceasing quantitative easing, saying economic conditions since late 2020 had been consistently stronger than anticipated.
Yesterday, Governor Adrian Orr said economic spending has recovered to above pre-Covid levels and the monetary policy committee “needs to think about when and how we would return interest rates to more normal levels.”
Policy Normalization
New Zealand is in the vanguard of developed-world central banks that are beginning to normalize policy and is set to become one of the first to raise rates in the wake of the pandemic. South Korea has also signaled it could lift borrowing costs this year. Still, the Federal Reserve last week indicated 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 before 2024.
New Zealand business confidence rebounded in late 2020 after a V-shaped economic recovery boosted by the nation’s success in eliminating community transmission of the virus. The jobless rate never hit the highs feared when the pandemic first hit.
New Zealand employment rose for a third straight quarter after slumping in mid-2020, and also gained 1.7% from a year earlier. Economists had forecast 1.2% annual growth. The participation rate increased to 70.5% from 70.4% in the three months through March. Economists projected 70.5%.
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.
Ordinary time wages for non-government workers rose 0.9% in the quarter, the most since 2008, the statistics agency said. From a year earlier, wage growth picked up to 2.2% from 1.6% in the 12 months through March.
(Update with details throughout)
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