By Lucy Craymer
WELLINGTON, Nov 4 (Reuters) – New Zealand’s unemployment rate climbed to an 11-year high in the third quarter, underscoring the economic and inflation pressures dominating the country’s election campaign and sharpening the challenge for Prime Minister Christopher Luxon, who is seeking another term.
Luxon’s centre-right National Party-led coalition is facing mounting pressure to demonstrate that its policies can lift growth and ease cost-of-living strains, with a Ipsos poll earlier this week listing inflation and the cost of living as the top concern for voters ahead of a tight election contest on November 7.
The jobless rate rose to 5.7% in the three months to September, its highest since 2015, from 5.5% in the previous quarter, Statistics New Zealand said on Wednesday. Employment fell 0.1% from the prior quarter.
Barbara Edmonds, finance spokesperson for the opposition Labour Party, described the jobs numbers as “a damning verdict on Christopher Luxon’s economic management.”
“His last chance to show his plan was working has come and gone, and Kiwis are paying the price…For working families, the pressure hasn’t let up. The cost of living is still biting, bills are piling up and wages are struggling to keep pace,” she said in a statement.
Finance Minister and National Party parliamentarian Nicola Willis said the data reflects the impact of uncertainty on the economy and the need to stick with the current government’s plan, which she believes is working to rebuild the economy.
Luxon, the former Air New Zealand CEO, beat Labour leader Chris Hipkins in the 2023 election, promising to lower debt, bring down inflation and drive growth in the economy.
Even though economists say there are signs that the economy has started to recover, unemployment has tracked higher and it did not peak in the second quarter as the central bank had forecast.
The labour figures on Wednesday were weaker than market expectations, with economists in a Reuters poll forecasting unemployment of 5.5% and a 0.4% increase in employment. The Reserve Bank of New Zealand had also forecast a 5.5% jobless rate.
The weaker data saw the New Zealand dollar dip before returning to trade largely unchanged at $0.5592, while two-year swap rates fell 6 basis points to 3.7815%.
The participation rate slipped to 70.4%, below forecasts of 70.7%.
Wage growth also moderated, adding to signs that the economy is losing momentum. The private-sector labour cost index, excluding overtime, rose 0.4% in the quarter, slowing from a 0.7% increase in the previous three months. Annual wage growth eased to 2.0% from 2.1% in the second quarter.
IMPLICATIONS FOR CASH RATE
The figures could lessen pressure on the central bank to resume interest-rate increases, after it surprised markets last week by keeping the official cash rate unchanged at 2.75%. The Reserve Bank said it wanted time to assess the impact of its two previous rate hikes, though it signalled further increases were still likely.
Kiwibank economists said the decision to hold rates looked increasingly justified as the labour market weakened.
“A weak labour market acts as a pressure lid on price growth … and we are seeing it play out in real time,” they said in a note, adding that further rate increases would not be necessary if the trend continued.
Currently, the central bank has a single mandate to focus on inflation but employment does remain a component of decisions. However, Labour has promised that if it is elected then the central bank will be returned to a dual mandate where it considers price stability along with maximum sustainable unemployment.
(Reporting by Lucy Craymer; Editing by Renju Jose and Lincoln Feast.)
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