The strong labour market has got a touch cooler with a surprise rise in unemployment but wages rose at the fastest rate in more than a decade, guaranteeing further hefty interest rate rises by the Reserve Bank (RBNZ).
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Stats NZ reported the jobless rate edged up to 3.3 percent in the three months ended June from 3.2 percent, against expectations of a fall to a record low of 3.1 percent.
The data showed no employment growth during the quarter, but a marked shift from part time to full time work, and a strained labour market.
"Measures of spare labour market capacity have fallen over the year and remained low for several quarters, continuing to show a tight labour market."
The number of people absent from work for a full week due to sickness, illness, or injury nearly doubled - up to 55,000.
Westpac acting chief economist Michael Gordon said the numbers also showed some shifting patterns.
"There has been solid growth in youth employment and participation, as we expected, but that appears to have been outweighed by a sharp rise in the number of people moving into retirement during the quarter."
Wage surprise
However, the big surprise was the strength of wage increases.
There are various measures, with the private sector labour cost index (LCI) rising at an annual rate of 3.4 percent, the highest since late 2008, while the average hourly earnings contained in the quarterly employment survey, which gives a closer approximation to shop floor increases was up 6.4 percent in the June year.
Another Stats NZ senior manager, Sue Chapman, said wages had been rising to match market rates and hold on to or attract staff.
"Nearly two thirds of roles surveyed in the LCI saw an increase in ordinary time wage rates in the year ended June 2022, the highest level since this series began in 1993."
ASB senior economist Mark Smith said the broad scope of wage rises suggested a wage-price spiral was unfolding, which would keep the Reserve Bank on course for further rate rises.
"High inflation looks to be increasingly entrenched and domestically driven and this necessitates forceful action and tough talk by the RBNZ."
The RBNZ is expected to hike the official cash rate by 50 basis points to 3 percent later this month, with an odds-on chance of a similar sized rise in September.
Smith said it was likely the labour market would remain tight with unemployment sitting around current levels going into next year.
"We expect the labour market to eventually loosen from next year as net immigration outflows turn into inflows, and the competition for jobs amongst workers in New Zealand increases."