New Zealand's jobless rate rose in the first quarter as the nation's labour force recorded its biggest increase in 12 years and Auckland drove an increase in employment growth.

The unemployment rate rose to 5.7 percent in the first quarter, from a revised 5.4 percent three months earlier, Statistics New Zealand said. The labour force increased by 38,000, or 1.5 percent, the largest increase since December 2004. The participation rate rose to 69 percent from 68.5 percent, while the employment rate edged up to 65.1 percent from 64.9 percent.

While employment is growing, wage inflation as measured by the labour cost index remains subdued, rising at 0.4 percent in the quarter for an annual rate of 1.6 percent. That tallies with the Reserve Bank's assessment that record migration is not only boosting economic growth but also increasing the labour force, keeping a lid on wage inflation.

"Wage growth is set to remain muted and an area of concern for the RBNZ as it tries to generate added inflation pressure," economists at ASB Bank said before today's release.


"Ongoing weak wage inflation outturns would highlight the downside risks to the inflation outlook and would likely reduce any current doubts the RBNZ has about cutting the OCR again in June."

Auckland, the biggest beneficiary of immigration and a city grappling with surging property prices, recorded a 2.9 percent increase in employment and accounted for 49 percent of overall New Zealand employment growth in the 12 months ended March 31, the government statistician said.

Total employment across the country grew by 2 percent, or 47,000 people in the year, although the employment rate is down 0.3 percent from a year ago because of the increase in the working-age population.

The total working age population rose by 0.8 percent in the March quarter to reach 3.69 million, the largest quarterly increase since the series began in 1986.

The New Zealand dollar advanced after the data. It recently traded at 69.35 US cents, from 69.18 cents immediately before the 10:45am release.

The construction industry recorded the biggest gain across sector groups, with a 17,500 increase in the latest year. Much of the growth was in Auckland where forecast growth is expected to require an estimated 32,000 extra jobs through to the likely peak in 2018.

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