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New Zealand’s jobless rate held just above historic lows while wage inflation hit its highest levels in at least three decades, as the market remains tight.

The unemployment rate increased to 3.4 per cent in the December quarter and was slightly higher than a forecast of 3.3 per cent by economists, Statistics New Zealand data showed on Wednesday.

Wage growth was very strong in the three-month period with the private sector labor cost index (LCI) excluding overtime recording a 4.1 per cent lift on year but came in slightly below the forecast 4.3 per cent gain. This was its biggest increase since the series began in 1993.

“The labor market remained extremely tight in Q4, but cracks are beginning to show,” said Finn Robinson, an economist at ANZ.

“Combine these timely indicators with Q4 CPI inflation coming in cooler than the Reserve Bank of New Zealand feared, and we see a strong argument for the RBNZ to hike ‘just’ 50 basis points in February, rather than the 75 basis points signaled by the November [Monetary Policy Statement] OCR forecast.”

The RBNZ in November increased the cash rate by a record 0.75 percentage point to 4.25 per cent and promised more pain to come as it struggles to cool red-hot inflation in an over-stretched economy.

With Reuters