Subdued wage growth backs steady NZ rate Outlook

WELLINGTON: New Zealand posted a modest lift in wages and the job market in the December quarter, posing no risk to inflation and the central bank's steady interest rate policy.

The labour cost index of private sector wages rose 0.5 percent on the September quarter, while the annual rate rose 1.9 percent, data showed on Tuesday. They were in line with market expectations in a Reuters poll.

Separately, the quarterly employment survey (QES) showed the number of hours worked increased and the number of filled jobs also rose 0.4 percent thanks to improved full-time jobs.

The QES's measure of wages, which reflects changes in the make-up of the workforce, painted a soft picture, with private sector wages falling 0.4 percent for the first time since March 2010, keeping overall wage pressure fairly benign.

"It doesn't mean anything for rates apart from giving the Reserve Bank of New Zealand more confidence that they had read the economy correctly," said JP Morgan economist Ben Jarman.

Financial markets were unmoved by the data, with the New Zealand dollar holding around $0.8430 and interest rate futures mostly flat.

Wages have not been an inflationary threat for many years because of patchy economic growth. Unemployment rose to 7.3 percent, the highest level in 13-1/2 years, in the September quarter.

Modest economic growth, albeit better than in Europe, has seen uneven and inconsistent job creation. The ANZ job advertisements series recovered for the first time in four months in December.

The latest ANZ Bank monthly business survey also showed a lift in employment intentions but it remained at low levels.

The labour force data has been volatile in recent quarters leading some analysts to question its validity.

"There were indications that employment picked up a bit over the fourth quarter, and we're sticking with our forecast for 0.5 percent employment growth and the unemployment rate easing to 7 percent," said ASB Bank economist Jane Turner.

The Reserve Bank of New Zealand (RBNZ) has held its key rate at a record low 2.5 percent since April 2011, as annual inflation fell below its target band for the past six months, keeping it close to a 13-year low.

In December, the RBNZ's forecast for the 90-day bank bill , seen as a barometer for future moves in the cash rate, implied steady rates until 2014.

The bank expects annual inflation to return to around 2 percent with a pickup in the housing market and the rebuild in earthquake damaged Christchurch.