Westpac senior economist Michael Gordon tips wage growth to hit 10-year high

Wage growth has been low for the past decade against a backdrop of generally low inflation. Photo / File

Labour market data due on Wednesday will likely show wage growth hitting a 10-year high despite a rising unemployment rate, economists say.

Economists from the major banks are picking unemployment will rise to either 4.2 or 4.1 per cent for the third quarter - bouncing back from an unexpected 11-year low of 3.9 per cent in the second quarter.

That was likely to reflect a softening in employment intentions in business confidence surveys and the broader slowdown in economic growth over the past year, Westpac senior economist Michael Gordon said.

Gordon is picking a rise to 4.2 per cent, as employment growth slows to just 0.6 per cent.

Despite that, unemployment remains at historically low levels which are viewed by the Reserve Bank as within the range of "maximum sustainable employment".

In other words, the labour market remains tight.

On that basis, wage growth was likely to have continued its gradual acceleration, Gordon said.

"We expect a 0.6 per cent rise in the Labour Cost Index for the September quarter, which would lift annual growth to a 10-year high of 2.2 per cent."

Wage growth has been low for the past decade against a backdrop of generally low inflation.

Some of the recent lift in wage growth was because of government policy rather than market forces, Gordon said.

The June quarter data had a lift from a 7.3 per cent increase in the minimum wage.

There is nothing quite as significant as that on the cards for the September quarter, although the first round of the primary teachers pay settlement and the next round of the nurses settlement are due.

The Stats NZ third quarter labour market data is the last major data release before the Reserve Bank's rate cut call on November 13.

Last week, Westpac changed its call, picking that the Reserve Bank will keep the official cash rate on hold, based on sign of a renewed life in the housing market and recent rhetoric from the Bank.

"The RBNZ is already braced for a rise in unemployment in the near term , so it would take worse outcome than we are forecasting to prompt a change to the OCR outlook," Gordon said.

In fact, unemployment had surprised on the low side for the past several quarters, he said.

The figure had been out of step with other labour market indicators which presented a risk that it did "snap higher at some point", he said.

Economists at ANZ and ASB still expect the Reserve Bank to cut the official cash rate to by 0.25 per cent 0.75 per cent.