New Zealand’s unemployment rate unexpectedly rose to 3.3%

New Zealand’s unemployment unexpectedly rose from a record low in the second quarter, but wages rose at their fastest pace in 14 years, suggesting the central bank will continue to raise interest rates aggressively to curb inflation.

The unemployment rate rose to 3.3% in the first quarter from 3.2%, the lowest level since records began in 1986, Statistics New Zealand said in Wellington on Wednesday. Economists expect a decline of up to 3.1%. Employment was flat from the previous three months, while annual wage inflation rose to 3.4%, the fastest since 2008.

Labor shortages and capacity constraints are contributing to rising inflation in New Zealand, prompting the Reserve Bank to quickly withdraw monetary stimulus. The RBNZ is expected to raise interest rates for the fourth consecutive half-percentage point later this month, taking the policy rate to 3% as it seeks to rein in demand in the economy.

“The labor market continues to be very tight, with employment above its maximum sustained level,” said Mark Smith, chief economist at ASB Bank in Auckland.

Kiwi dollar falls after employment report. It bought 62.28 cents at 11:10 am in Wellington, down from 62.55 cents earlier.

While the RBNZ does not have a numerical target for job growth or the unemployment rate, it has said that employment is above the maximum sustainable level to be achieved. At 7.3% in the second quarter, inflation is also above the central bank’s target range of 1-3%.

The RBNZ’s policy tightening has depressed asset prices and eroded business and consumer confidence, raising the possibility of a recession. However, the labor market is tight due to the lack of migrant workers. The border was not fully reopened until this week, more than two years after it was closed at the start of the pandemic.

The economy failed to add jobs for the third consecutive quarter, with no change in first-quarter employment. Economists had expected growth of 0.4% in the second quarter.

Annual job growth was 1.6%, below the median estimate of 2.3%, and below the revised 2.7% in the first quarter.

The participation rate fell to 70.8% from 70.9% in the three months to March.

Statistics New Zealand’s underutilization rate, a broader measure that includes workers looking for extra hours, fell to 9.2% from 9.3% in the first quarter.

Regular hourly wages for non-government workers rose 1.3% in the quarter, according to the statistics agency. Economists were expecting 1.1%.