New Zealand employment likely to grow further in December, unemployment rate to fall

New Zealand’s December employment report is expected to be released on Wednesday, February 1. The country’s employment is likely to grow further in December in the wake of firm economic activity. Also, the unemployment rate is expected to fell further to 4.8 percent in December.

Given the tightening of the labour market, it is widely expected that some time is needed to feed wages growth, while keeping inflation subdued in the last quarter of 2016.

But while wage growth is currently low, this won’t be the case forever. We expect that strong demand for workers, as well as increasing cost of living adjustments, will contribute to rising wage inflation over the coming year. Businesses, especially in the construction sector, are finding it increasingly difficult to source both skilled and unskilled workers. This is likely to become even more acute as the epicentre of construction activity moves from Canterbury to Auckland, reported Westpac in its research note.

Anecdotally, firms are already finding it difficult to convince staff to relocate. Inevitably, attracting workers to New Zealand’s most expensive city will probably require an improved pay packet. On top of this, one of the key reasons for low wage inflation in recent years has been the low level of consumer price inflation, they added.

However, inflation has been rising, with further gradual gains expected over the coming year. At the same time, inflation expectations, which are a key influence on how businesses set wages and prices, have lifted off their lows.