Wednesday's employment figures could shape the RBNZ's next move on mortgage rates
For advisers fielding client questions on rate direction, this week's labour market release is the key input economists are watching before the RBNZ's next moves.
ASB expects the central bank to keep tightening toward a 3.25% year-end OCR, while Westpac is forecasting hikes in September and December that would take the OCR to 3.75% within a year.
With mortgage rates already trending higher across most fixed terms, advisers may want to flag to clients that further OCR movement remains data-dependent, and that Wednesday's employment print carries real weight in that decision.
Unemployment tipped to climb
New Zealand's June quarter labour market statistics, due Wednesday 5 August, are expected to show the unemployment rate lifting from 5.3%. ANZ, ASB, and the RBNZ's own May Monetary Policy Statement are picking 5.5%, while Westpac sits a touch lower at 5.4%. Kiwibank is the outlier, expecting the rate to hold flat at 5.3%.
Across the board, the common thread is that labour supply is growing faster than labour demand — a dynamic likely to show up as a mix of higher unemployment and softer participation rather than outright job losses.
Wage growth is expected to stay contained. ASB is picking annual labour cost growth to hold at 2%, and ANZ Research noted "annual wage growth measured by the LCI is expected to slow 0.1ppt to 1.9%." Kiwibank struck a similarly steady tone, observing that "no wage growth means no wage-price-spiral, which means no need to panic about inflation getting out of hand."
Businesses caught between costs and confidence
That labour market softness sits awkwardly alongside a surprising lift in sentiment elsewhere in the economy. ANZ's July Business Outlook and Roy Morgan consumer confidence survey both posted solid gains, with confidence lifting on the back of easing fuel prices and improving perceptions of the economy.
However, ASB cautioned that the improvement may not hold, noting that "responses did sour as the month progressed" as oil prices spiked again late in July. Westpac echoed this caution, pointing out that inflation perceptions were elevated well before the latest Middle East flare-up and that core inflation measures remain in the upper half of the RBNZ's target band.
Kiwibank's economists summed up the balancing act businesses face, warning that "the risk is that their margins will be eroded to the point of failure" as costs rise faster than what can be passed on to customers.
For more insights, read the latest weekly economic updates from ASB, Kiwibank, ANZ Research, and Westpac.
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