(Aug 5): New Zealand’s jobless rate rose to an 11-year high in the second quarter as the global energy shock squeezed company profits while more people sought work.

Unemployment increased to 5.6% from an upwardly revised 5.4% three months earlier, Statistics New Zealand said Wednesday in Wellington. That’s the highest level since the third quarter of 2015 and exceeded the median estimate of 5.4%. 

Employment climbed 0.5% from the prior three months, outpacing the 0.1% estimate, though that gain was partly absorbed by a surprise increase in the participation rate.

New Zealand’s economic recovery remains fragile at a time of geopolitical ructions such as the US-Iran war, which has driven up costs and eroded business confidence. Still, the economy added 33,000 jobs in the 12 months through June — the best annual gain since 2023 — suggesting the labour market, while soft, is poised for recovery.

“Improving labour demand and supply metrics are good underlying signs despite the higher headline unemployment print,” said Wesley Tanuvasa, an economist at ASB Bank in Auckland. “Nevertheless, labour market slack is still visible, with broader measures of underutilisation remaining high. This has helped to keep wage pressures modest.”

The New Zealand dollar edged lower after the report, buying 58.78 US cents at 11.25am in Wellington, and the yield on the two-year government note fell six basis points to 3.56%.

The jump in unemployment will be unwelcome news for the centre-right coalition government, which faces a general election in early November. The ruling National Party trails in opinion polls as voters grow weary of its claims to be the superior economic manager at a time when the recovery is still struggling for traction.

The labour market report showed annual wage inflation accelerated for the first time in three years. Ordinary time wages for non-government workers gained 2.1% from a year earlier, rising from a 2% pace in the first quarter.

The Reserve Bank, faced with surging inflation, increased the Official Cash Rate to 2.5% in July. It said then that a further reduction in stimulus was likely and investors are wagering the benchmark will rise to 3% by the end of the year.

Governor Anna Breman, in an interview with the Post newspaper published Wednesday, reiterated that she is focused on returning inflation to the midpoint of the RBNZ’s 1-3% target. She maintained that it is possible to deliver low and stable inflation while also seeing stronger economic growth and an improving labour market.

“My concern is that some people are starting to say things like ‘this is the new normal with high inflation’, and that’s not at all the case,” Breman told the newspaper. “We’ll get back to low and stable inflation, and just because we had a few hits now doesn’t mean that we can’t achieve that.”

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