ASB shares new OCR projection
(14 August 2012 – New Zealand) The second quarter showed an unexpected rise in the unemployment rate in New Zealand, adding to the weaker inflation picture within the country and may delay the Reserve Bank of New Zealand (RBNZ)’s next rate rise to June 2013 according to ASB Bank.
ASB said last Thursday’s Household Labour Force Survey (HLFS) delivered a truly surprising result, revealing a much weaker labour market than previously thought.
"Over the past year we have been looking for a steady, albeit gradual, improvement in employment demand and decline in the unemployment rate. Instead we have seen employment growth fall short of expectations and a small increase in the unemployment rate.
"At 6.8 percent, it has barely changed since its post GFC recession peak of 6.9 percent. This highlights the extent of unused labour resource in the economy, and points to wage inflation pressures remaining subdued over 2012," the bank said.
ASB also said the weaker result added to the weaker near-term inflation outlook which has evolved over recent months. In particular, the NZD remains elevated and a significant headwind to the export sector over the coming year.
"In assessing the overall outlook, we now expect the RBNZ will wait until June 2013 before first lifting the OCR (previously March). Nonetheless, we still see the RBNZ as underestimating future inflation pressures and the risks of the housing market heating up by more than it currently anticipates. However, the balance of risks suggests the RBNZ is more likely to wait until the middle of 2013 before lifting the OCR."
"Over the past year we have been looking for a steady, albeit gradual, improvement in employment demand and decline in the unemployment rate. Instead we have seen employment growth fall short of expectations and a small increase in the unemployment rate.
"At 6.8 percent, it has barely changed since its post GFC recession peak of 6.9 percent. This highlights the extent of unused labour resource in the economy, and points to wage inflation pressures remaining subdued over 2012," the bank said.
ASB also said the weaker result added to the weaker near-term inflation outlook which has evolved over recent months. In particular, the NZD remains elevated and a significant headwind to the export sector over the coming year.
"In assessing the overall outlook, we now expect the RBNZ will wait until June 2013 before first lifting the OCR (previously March). Nonetheless, we still see the RBNZ as underestimating future inflation pressures and the risks of the housing market heating up by more than it currently anticipates. However, the balance of risks suggests the RBNZ is more likely to wait until the middle of 2013 before lifting the OCR."
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