NZ Unemployment Rate Expected to Hit 5.5% Amid Cooling Labor Market

New Zealand's labor market is showing signs of cooling down according to ANZ Research. The bank expects unemployment to rise to 5.5% in the June quarter as employers ease off on hiring.

This could happen even if the employment rate remains flat, due to a decline in the participation rate. ANZ predicts that this will dip by 0.1 percentage points to around 70%, while the working-age population grows by 0.3%. This combination of factors is expected to lead to slower wage growth.

The Labor Cost Index (LCI) and the Quarterly Employment Survey's private-sector measure are both expected to slow down, with the LCI easing to 1.9% year-on-year and the private-sector measure cooling to 2.8%. This could have a positive effect on inflation data, reducing the risk of wages pushing up service prices.

The Reserve Bank of New Zealand closely watches for this type of inflation, which is influenced by wage growth. A slower pace of hiring combined with a growing pool of working-age people can weaken workers' bargaining power and make big pay increases harder to achieve. As a result, businesses may struggle to pass on higher labor costs to consumers.