PREVIOUS TRADING DAY EVENTS 02 August 2023

New Zealand unemployment rose to 3.6 in the second quarter and wage inflation showed signs of slowing, indicating a weakened labour market. 

The Reserve Bank has signalled that it has raised rates sufficiently to tame inflation and that the economy has stalled, expecting further increase in the unemployment rate.

We envisage that a turning point looks to be close and that greater labour market slack will emerge over the remainder of 2023 and into 2024, said Mark Smith, senior economist at ASB Bank in Auckland. Still, theres a risk that labour market tightness and elevated wage and core inflation could stick around for longer than would be comfortable for the RBNZ, he said.

Inflation lies at 6 in the second quarter, down from 6.7 in the first quarter. The Official Cash Rate at 5.5 is high enough to close the cycle with aggressive rate hikes. However, economists expect one more increase to take place.

While capacity pressures have improved compared to the first quarter, the RBNZ will need to see more progress very soon to allow them comfort that the OCR is sufficiently restrictive, said Henry Russell, an economist at ANZ in Auckland. We think the next labour market report will raise enough questions about the future path of inflation to draw the RBNZ back to the hiking table.

Source httpswww.bloomberg.comnewsarticles20230801newzealandjoblessrateriseswageinflationmayhavepeaked

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