Unemployment edges lower while subdued pay keeps OCR risk alive
New Zealand’s labour market started 2026 on a firmer footing, with several surveys pointing to the first signs of recovery before the latest Middle East shock hit confidence.
Stats NZ data show the seasonally adjusted unemployment rate eased to 5.3% in the March quarter, with 163,000 people unemployed.
“The unemployment rate was 5.3% in the March 2026 quarter, compared with 5.4% in the December 2025 quarter,” labour market spokesperson Abby Johnston said.
Westpac senior economist Michael Gordon noted that the Household Labour Force Survey “provided a modest positive surprise with the unemployment rate ticking down from 5.4% to 5.3%, the first decline since December 2021.”
Employment rose 0.2% over the quarter and hours worked lifted more strongly, while ASB’s review emphasised that the Stats NZ data “were broadly reflective of a labour market slowly but surely recovering prior to the Middle East conflict.”
For mortgage borrowers, the picture is of a market that is no longer deteriorating but still far from tight: underutilisation remains at 12.9%, indicating a sizeable pool of under‑used workers, and ASB notes that employment is still below late‑2023 peaks.
Wage growth stays contained, easing inflation risks
Despite firmer employment, wage and salary growth remains modest. Stats NZ puts annual wage inflation at 2.0%, while the Labour Cost Index for all sectors also rose 2% over the year.
Westpac highlights that the distribution of pay rises is converging around the 2–3% band, and the broader analytical LCI has cooled to 3.1% annually – its smallest increase since 2021.
ASB’s analysis similarly characterises private‑sector labour cost growth as “modest at 2%” and one of the few inflation indicators they do not expect to rise materially this year. That combination of slack and subdued wage growth implies limited upward pressure on household incomes, even as living costs and mortgage rates remain elevated.
RBNZ still facing tough OCR decisions
Both bank research teams conclude that the latest labour figures, on their own, are unlikely to force a drastic rethink at the Reserve Bank’s May policy review. Westpac argues the surveys “won’t give the RBNZ much to ponder,” while ASB still expects a “steady sequence of 25bp hikes from July” to push the official cash rate higher as policymakers respond to renewed inflation risks from the Middle East‑driven oil shock.
For more information and insights, read the Stats NZ media release as well as the Westpac and ASB reports.
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