Wage inflation slows in first quarter, adding to case for interest rate cut

See also: Job market surges even as unemployment stays 'sticky'

New Zealand's wage inflation slowed in the first three months of the year as an expanding labour market soaked up growing capacity, helping lift participation to a new record.

The labour cost index shows private sector wages rose 0.3 percent in the first quarter, slowing from a 0.5 percent pace in December, according to Statistics New Zealand. That's the slowest pace since the March 2014 quarter. Annual wage inflation for the private sector was unchanged at 1.8 percent. (See graph below)

Including the public sector, total labour costs rose 0.3 percent in the quarter, slowing from 0.5 percent three months earlier, for an annual increase at 1.7 percent.

The Reserve Bank last week said it was monitoring wage and price-setting outcomes after consumer price inflation fell short of its expectations, prompting governor Graeme Wheeler to adopt a bias towards lowering interest rates. The New Zealand dollar dropped to 74.91 US cents after today's data, from 75.54 cents immediately before as traders speculated weak wage pressures would add to the case for an interest rate cut. The trade-weighted index declined to 77.51 from 78.02.

Just 11 percent of all salary and ordinary time wage rates increased in the quarter, the lowest proportion since March 2010 in what's typically a muted period for pay rises. On an annual basis, 59 percent of salaries were hiked, unchanged from the December period.

The quarterly employment survey showed ordinary private sector wages rose 0.2 percent to an hourly rate of $26.83, the slowest quarterly growth since the December 2012 period. Including the public sector, ordinary time wage growth was flat at $28.77.

New Zealand's unemployment rate was unchanged at a revised 5.8 percent, higher than the expected 5.5 percent rate forecast in a Reuters survey of economists. The number of people employed rose 0.7 percent in the quarter, while the participation rate increased 0.2 of a percentage point to 69.6 percent, a new record.

"This is a greatest share of New Zealanders we have ever seen in the labour force," labour market and households statistics manager Diane Ramsay said in a statement. "We saw strong employment growth over the last year, with Auckland and Canterbury making the most significant contributions."

New Zealand's population has been bolstered by an increased inflow of net migration, with fewer kiwis leaving, more expats returning, and new migrants arriving. That flood of new labour has helped keep wage inflation tame as more people compete for jobs, while the accelerating economy has been able to soak up new workers.

Today's household labour force survey showed manufacturing jobs rose to 256,800 in the quarter from 253,200 in the December period, construction jobs grew to 212,700 from 204,500, and retail, accommodation and hospitality jobs rose to 371,800 from 359,000.

Total hours work rose a seasonally adjusted 1.4 percent to 78.7 million in an average week, for an annual rise of 2.7 percent.

Auckland led jobs growth in the quarter, though an increased workforce lifted its unemployment rate to 6.9 percent from 5.8 percent in December, while Canterbury's jobless rate fell to 3.2 percent from 3.5 percent. Northland had the highest unemployment rate across the country at 9.9 percent, up from 8.3 percent in the December quarter.

(Source: NZ Stats)

(Source: NZ Stats) (Click to zoom)

(Source: NZ Stats) (Click to zoom)

(BusinessDesk)