Fewer people had jobs in the December quarter and wage inflation remained tepid, something that could increase the likelihood of a rate cut in New Zealand. 

The seasonally adjusted unemployment rate rose to 4.3 percent in the three months ended Dec. 31, from a revised 4 percent in the September quarter, Statistics New Zealand said in its household labour force survey. Economists surveyed by Bloomberg had tipped the unemployment rate to rise to 4.1 percent. 

The New Zealand dollar fell more than half a cent to 67.72 US cents from 68.28 cents just ahead of the data and was trading at 67.65 at 12pm in Wellington. 

Markets, meanwhile, moved from pricing a 54 percent chance of a rate cut this year to a 66 percent chance after the data.  

Private sector wage inflation – including overtime – rose 0.5 percent in the quarter for a 2 percent annual increase. Economists had expected a lift of 0.6 percent. Public sector wage inflation was up 0.7 percent in the quarter for a 1.7 percent annual gain.  Across both sectors, wage inflation rose a quarterly 0.5 percent and an annual 1.9 percent.

The annual lift in wage inflation was in line with the 1.9 percent lift in the annual consumers price index in the December quarter.

Economists said the ongoing subdued wage inflation picture and the weaker-than-expected jobs numbers will likely mean the Reserve Bank is more cautious at next week’s review. The central bank has changed its regime and will announce its cash rate decision at 2pm on Wednesday, a day before it’s implemented on Thursday. 

While the central bank has repeatedly said that the next move in rates could be up or down, its official forecasts show the next move will be a hike, albeit not until late 2020. 

“The lack of an inflationary smoking gun keeps the prospect of possible official cash rate cuts alive,” said ASB Bank senior economist Mark Smith. 

ANZ Bank New Zealand has previously said the central bank could cut rates three times between now and 2020. Senior economist Liz Kendall said the data will “add to a more cautious tone from the RBNZ next week, on the back of a softer outlook for activity, clear global growth risks and emerging economic headwinds, even if we don’t see a significant change in their central forecasts.” 

“In our view, the RBNZ will eventually need to cut the OCR, but the move to a more overtly dovish stance may take some time to unfold,” she said. 

Annette Beacher, chief Asia-Pacific macro strategist for TD Securities, expects the Reserve Bank will change its forecasts as a result of today’s figures. She said the RBNZ will likely “out-dove the RBA” by flattening the interest rate track further and “re-hashing the 100 basis point rate cut scenario.” 

In August, the central bank outlined a scenario where it would cut by 1 percentage point, but since then its downside scenarios have been less pessimistic.

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