The pick-up in unemployment, which was above RBNZ expectations, should indicate that Alan Bollard will wait for a more robust rebound in the economy before tightening monetary policy. The indications are that he will wait till September before implementing contractionary measures. Commentators are optimistic in the long-run as, eventhough the unemployment figures are disappointing, some surveys are promising:
– business and consumer surveys are solid from 2010
– expectations about hiring in the labour market are positive
What is worrying is that wage and salary inflation is on the up, with unit labour costs running near 2% per annum, and nominal rates pushing 4%. Even with this level of unemployment one wonders what is the NAIRU – the non-acclerating inflation rate of unemployment. During the upturn economists looked at 5% being the rate at which unemployment didn’t impact on prices. These figures also suggests that we have some structural unemploymnet issues and a mismatch between vacant jobs and the skills of the unemployed.