Slightly higher unemployment figures no boon for borrowers – experts

Slightly higher than expected unemployment levels will be no help for borrowers according to bank economists.

Wednesday, August 3rd 2022, 5:49PM

by Eric Frykberg

Their comments follow a small rise in jobless numbers in the June quarter, from 3.2% to 3.3%.

This was also higher than most forecasts.

But it will do little to ease the pressure on interest rates, according to the acting chief economist at Westpac Michael Gordon.

“Burgeoning wage pressures mean that more will be needed to restrain demand in the economy,” Gordon said.

“We now expect the OCR to peak at 4% by the end of this year.”

That is an increase on Westpac's earlier plateau of 3.5%.

The Kiwibank economics team also worried about the 3.3% unemployment rate, and said it would spur the Reserve Bank on to greater resolve to “tame the inflation beast.”

“The recent tightness of the labour market is now translating to rapidly rising wage growth....and large wage hikes appear generally widespread across industries,” they wrote.

“We expect the RB to deliver a fourth consecutive 50 basis point hike in the cash rate to 3.00% in a fortnight’s time.”

“The risk from here is a continued tightening beyond our forecast 3.5%. The RBNZ is likely to signal a move to 4% and potentially higher.”

ASB senior economist Mark Smith spoke of a “wage price spiral that would trouble the Reserve Bank.”

The labour market was exceptionally tight, he wrote, adding the cost of labour was rising faster than it had since the Global Financial Crisis.

“High inflation looks to be increasingly entrenched and domestically driven, and this necessitates forceful action and tough talk by the RBNZ to ensure future inflation outcomes align with the 1-3% inflation target,” Smith said.

“We expect the RBNZ to deliver a 50 point hike in the August Monetary Policy Statement and 125 point hikes in total by year-end, with the OCR peaking at 3.75%.”

Tags: unemployment