NZ jobless rate sparks inflation fears

Ben McKayAAP
New Zealand's unemployment rate has fallen from 4.6 per cent an eye-wateringly low 4.0 per cent.
Camera IconNew Zealand's unemployment rate has fallen from 4.6 per cent an eye-wateringly low 4.0 per cent. Credit: AP

New Zealand's unemployment rate has fallen from 4.6 per cent an eye-wateringly low 4.0 per cent in the latest labour market survey by Stats NZ.

The 0.6 per cent drop from the March quarter to the June results was hailed by Prime Minister Jacinda Ardern, who claimed sucess in government efforts to ward off a coronavirus-induced downturn.

"I'd hoped that we would protect people from the impacts of this one-in-100 year economic shock. To see the proof that we have ... I'm proud of it," Ms said.

The figure defied both industry expectations and longer-term forecasts.

In last year's budget, delivered as New Zealand exited its nationwide lockdown, Treasury forecast unemployment to peak at 9.8 per cent due to COVID-19.

Instead, it may have peaked at just 5.2 per cent, the September 2020 figure.

"This positive result shows the Government's plan is delivering," Finance Minister Grant Robertson said.

"These results are excellent. There are 28,000 more people in work in the last three months."

Mr Robertson pointed to the unemployment rate of Australia (5.2 per cent), the US (5.9), Canada (8.0) and the OECD average (6.6).

"The ongoing impact of the pandemic is likely to see unemployment move around a bit. Nevertheless, New Zealand has performed favourably against the countries we measure ourselves against," Mr Robertson said.

The low unemployment rate is not all good news for the government, given the risk of inflation.

With the benefit of cheap lending opportunities, New Zealanders have borrowed up big last year in the last 18 months, fuelling a record splurge on housing.

There are now fears borrowers could default on loans if, as predicted, the Reserve Bank (RBNZ) increases its official cash rate (OCR).

ANZ New Zealand is now forecasting five rate rises over the next year, beginning this month.

"Today's data shows we've flown past full employment, and the economy is becoming quite overheated," ANZ chief economist Sharon Zollner said.

"The RBNZ needs to hike the OCR promptly to get on top of this. We now expect faster hikes this year," she said, predicting the 0.25 per cent cash rate would go to 1.5 per cent by next year.

Reflecting an economy-wide labour shortage, the underutilisation rate also fell to be 10.5 per cent.

"Spare capacity in the labour market is dwindling, which can potentially result in tighter labour market conditions and lead to upwards pressure on wage rates," Stats NZ spokesman Sean Broughton said.

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