Labour slack and Aussie hikes reshape rate outlook
New Zealand’s latest labour market figures are sending a mixed but broadly reassuring signal for Kiwi mortgage advisers and their clients: the jobs market remains soft, early signs of recovery are emerging – and crucially, wage pressures are easing.
Labour market still soft, but green shoots emerging
ASB economist Wesley Tanuvasa (pictured left) noted that while the unemployment rate rose to 5.4%, that headline “mostly reflected greater labour force participation increasing labour supply (i.e.: more people wanting to find jobs).”
NZ added 15,000 employees to the economy to end 2025, which helped hours worked increase 1% q/q (+0.7% y/y) – "that should be a good omen for Q4 GDP".
Westpac chief economist Kelly Eckhold (pictured center) drew a similar conclusion from the Household Labour Force Survey, which showed a 0.5% rise in employment over the December quarter and a lift in participation from 70.3% to 70.5%.
“In this case, unemployment ticked up from 5.3% to 5.4% – above our forecast of a flat outturn, but not meaningfully different,” Eckhold said.
For advisers, that combination – modest job growth, rising participation, and only a small unemployment uptick – points to a labour market with slack, but not a crisis.
Wage growth cools, reducing immediate inflation pressure
The key takeaway for OCR expectations is the downshift in wage growth. Private sector labour cost growth has eased to around 2% annually, a four‑year low.
Tanuvasa highlighted that “private sector labour cost growth eased to 2% annually – a four-year low. That suggests there is still labour market slack, which should push down on medium-term inflationary pressures.”
Eckhold noted that the Labour Cost Index rose just 0.4% in the quarter, with the annual LCI up 2.0%, “its slowest pace since March 2021.”
With “still-muted wage pressures,” Westpac sees the RBNZ under little pressure to move quickly, remaining “comfortable with our forecast that the first OCR hike will come in December 2026,” he said.
Kiwibank’s Jarrod Kerr (pictured right) echoed that message, arguing that “we simply do not have the same demand pulse that is driving inflation concerns over in Aussie. The Kiwi economy instead continues to operate with a significant degree of spare capacity.”
RBA hiking, but RBNZ likely to lag
Across the Tasman, RBA has just lifted its cash rate to 3.85% and signalled a further move to 4.1%, driven by core inflation at 3.8% and stronger private demand.
ASB notes that hawkish RBA guidance and higher Australian rates are pushing up wholesale funding costs and have in part flowed through to higher fixed mortgage rates from New Zealand’s big four banks.
At home, ASB still expects “the OCR will be hiked this year,” while Westpac explicitly forecasts the first hike in December 2026 and Kiwibank argues the RBNZ should be in “no rush” given spare capacity.
For mortgage advisers, the common thread is that rate cuts are off the table: a soft but stabilising labour market and easing wages give the RBNZ time, but not licence to ease.
What this means for Kiwi mortgage advisers
For borrowers, the message is higher‑for‑longer, rather than sharply higher or rapidly falling, mortgage rates. Advisers should:
- Stress‑test new and refixing clients at slightly higher rates, given wholesale pressures from Australia.
- Reassure households that rising unemployment to 5.4% reflects higher participation as well as soft demand, not a sudden collapse in jobs.
- Work closely with investor clients, who face a mix of softer wage‑driven inflation, patchy housing demand and rising funding costs.
As Tanuvasa puts it, while “there remain some brown patches on the lawn of economic recovery,” the high‑frequency data are increasingly pointing to “more green shoots than not” – but those shoots won’t be enough to deliver cheaper money any time soon.
For more insights, read the Westpac, Kiwibank, and ASB reports.
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