New Zealand unemployment rate plummeted to 5.3% in the December quarter, in
stark contrast to expectations for a small increase. Employment growth was up a
solid 0.9% while there was also a sharp fall in participation.
Despite
the strengthening in the labour market, wage inflation has remained stubbornly
low. The private sector Labour Cost Inflation rose by 0.4% over the quarter, to
be up 1.5% for the year - its slowest rate of increase since 2010. Wage
inflation has remained low for several years now. While that's a little
surprising in the context of an economy that's been growing at a pretty firm
pace in recent years, it comes against a backdrop of very low consumer price
inflation.
"For the RBNZ, low wage growth is likely to be trumped by
the sharp drop in the unemployment rate. On its own, this means the RBNZ is
likely to be in less of a hurry to cut rates and reduces the chance of an OCR
reduction in March." said Westpac in a research note to clients.