SAEDNEWS: New Zealand's unemployment rate reached a 10-year high in the June quarter as more people looked for work than the number of new jobs created. The rise is a challenge for the center-right government ahead of the general election.
According to Saednews, New Zealand's unemployment rate increased to 5.6% in the June quarter, reaching its highest level since late 2015, according to data released by Statistics New Zealand. The result exceeded economists' expectations of 5.4% and reflected a softer labor market, which may reduce pressure for rapid interest rate increases.
The previous quarter's unemployment rate was revised upward to 5.4%, indicating that employment conditions have continued to weaken.
Finance Minister Nicola Willis acknowledged the challenges faced by businesses and job seekers during the April to June period. She noted that many employers experienced difficult trading conditions, making it harder for New Zealanders searching for work.
Prime Minister Christopher Luxon, who was elected in 2023 with a strong focus on economic management, has seen declining public support as the economy slows and unemployment rises. Recent opinion polls show his National Party trailing the center-left Labour Party, although the country's electoral system makes the outcome of the upcoming November election uncertain.
The Reserve Bank of New Zealand (RBNZ) has indicated that further interest rate increases may still be necessary to control inflation and reduce economic stimulus. However, the growing amount of unused labor capacity suggests wage pressures remain weak, reducing the risk of inflation driven by domestic employment costs.
Economists believe the latest labor market data supports a cautious approach to monetary policy. Abhijit Surya, Senior APAC Economist at Capital Economics, said the figures reinforce expectations that the central bank will likely wait until October before raising interest rates again, despite financial markets anticipating a 25-basis-point increase in September.
In July, the RBNZ raised its official cash rate by 0.25 percentage points to 2.5% as part of its efforts to contain inflation, which has been fueled partly by rising global oil prices.
Annual inflation reached 4.1% during the June quarter, the highest level in two and a half years, moving well above the central bank's target range of 1% to 3%. Policymakers have stated that additional rate increases will likely be needed because current rates remain below estimates of the economy's neutral interest rate, generally considered to be between 3.0% and 3.25%.
Financial markets currently estimate a 90% probability that the RBNZ will increase the cash rate to 2.75% at its next policy meeting on September 2, with interest rates expected to peak around 3.5% by mid-2027.
Following the employment report, the New Zealand dollar (kiwi) fell 0.2% to US$0.5879, while the country's two-year swap rate declined by 6 basis points to 3.6351%.
Although employment grew by 0.5% during the June quarter—better than analysts had forecast—the improvement was offset by a rise in the labor force participation rate, which reached 70.7%, its highest level in more than a year.
Another indication of excess labor capacity came from the underutilization rate, which measures unemployed individuals as well as those wanting to work more hours. This figure increased to 13.8%, up from 12.9% in the previous quarter.
Despite rising inflation, wage growth remained modest. Annual wages increased by 2.0%, while private-sector wages rose 2.1%, both remaining well below the current inflation rate. This suggests limited wage-driven inflationary pressure and supports expectations of a gradual approach to future interest rate decisions.
