The employment rate is sitting slightly above sustainable levels, economists say. Photo: 123rf.com
Third quarter labour market data is expected to show ongoing wage pressures, increasing the risk of another hike in the Reserve Bank's official cash rate.
Stats NZ data for the three months ended September was expected to be largely in line with the Reserve Bank's expectations - with an annual unemployment rate slightly higher than its forecast 3.8 percent.
ASB and ANZ banks said employment levels were also expected to remain slightly above their sustainable level, with wage growth yet to wash through the economy.
Private sector wage growth was expected to slightly beat the central bank's forecast of a 4.1 percent annual increase in the Labour Cost Index.
ANZ Bank said ongoing wage pressure could see the Reserve Bank hike the Official Cash Rate (OCR) one more time in the new year, by 25 basis points, to 5.75 percent from 5.5 percent.
ANZ economist Henry Russell said the labour market was changing, which would make it tough for households already struggling with rising costs.
"The unemployment rate is going to continue to rise, and we do expect it to lift to over 5 percent in 2025, and that's absolutely going to be a challenge for many households," Russell said.
"Many are already doing it very tough but there is unfortunately a cost to getting inflation down. And the sooner we can do that the better."
ASB also said the Reserve Bank would be wary of the risk of ongoing strong labour costs, but did not think it would be enough of a concern to hike interest rates.
ASB senior economist Mark Smith said a stronger than expected rebound in migration was expected to ease labour market shortages, along with wage pressures.
"Really the key dynamic that is creating more slack in the labour market has been very strong growth in the labour force. Now we expect that to continue and for growing slack to appear in the labour market over the course of the next 12 months. Those factors [will] really be driving inflation towards 3 percent, or lower," Smith said.
The third quarter labour market data will be released on Wednesday morning, 1 November.