The power balance is tilting further towards employers, with the growth in labour costs cooling along with the job market, ASB senior economist Mark Smith says. File photo Photo: RNZ
The unemployment rate is expected to rise to a near four-year high as demand for workers cools while the economy struggles under the weight of high interest rates.
Economists expect data due on Wednesday will show a rise in annual unemployment to 4.7 percent in the June quarter, up from 4.3 percent in March - the highest since the end of 2020.
Westpac senior economist Michael Gordon said the labour market is "clearly softening", something the Reserve Bank (RBNZ) wants to see.
"The rise in unemployment from its lows was gradual at first, but has picked up the pace in recent quarters," he said.
The labour shortages experienced by employers in recent years now appear to be a thing of the past.
"That's due to a combination of a surge of migrant workers to fill the gaps once the border was reopened, and a drop in demand for new workers as the economy has cooled off," Gordon said.
"Job advertisements are now below pre-Covid levels, businesses report that labour is no longer hard to find, and our Employment Confidence Index shows that households are finding job opportunities much harder to come by," he said.
As demand for workers eases and competition for jobs rises, wage inflation is also expected to cool further.
ASB senior economist Mark Smith said private sector wages will likely rise by 0.8 percent in the quarter, with the annual cost growth cooling to 3.5 percent - the lowest level since mid-2022.
"Labour cost growth is expected to cool as the balance of power increasingly tilts towards employers, and as living cost increases slow," he said.
Smith said a more moderate increase in the minimum wage would also contribute to slower wage inflation, as well as slower increases in the cost of living.
"In our view (and the RBNZ's as well), the labour market is a key driver in the inflation process. We are increasingly confident that conditions are in place that will deliver sub-3 percent inflation on a sustained basis," he said.
ASB expected the official cash rate (OCR) to be cut by 50 basis points by the end of the year - starting with a 25 basis point cut in October and another in November.
Most economists expect at least one 25 basis point OCR cut by the end of 2024.
