The unemployment figures released today are widely expected to show an incremental rise from the current rate of 3.4 per cent.
This marks the start of a longer trend that will see the country’s unemployment rate climb in the coming months.
“We are expecting a small tick up in the unemployment rate, but ultimately, the Reserve Bank will need to see the unemployment rate lift a little higher to be confident that the demand is cooling sufficiently in the economy to get inflation back to target,” ANZ economist Henry Russell tells the Stock Takes podcast.
“No one wants to see the unemployment rate rise, but ultimately, there’s a trade-off between getting inflation back down and keeping employment levels elevated.”
The Reserve Bank (RBNZ) has steadily been pushing up the official cash rate in a bid to take some of the heat out of the economy, and this invariably means an uptick in the unemployment rate.
So, how many jobs could be lost in the coming months?
“For the RBNZ, they’re expecting the unemployment rate to rise as steeply as it did during the GFC,” says Russell.
“We don’t think we’re quite at those levels yet, but unemployment is certainly going to tick up. Our estimates would see around 50,000 people lose their [jobs] through to 2025. The RBNZ’s expectation is that it rises even further, so it’s a pretty grim picture.”
This will heap pressure on Kiwi families already struggling to keep up with the rising cost of living.
“In order to get inflation down, this is one of the unfortunate consequences. This is going to be very tough for people, but in the long run, the risks of having employment at unsustainable levels means that high inflation becomes problematically embedded in wage and price-setting behaviours and risks a much sharper correction.”
Russell says that the impact of these job cuts won’t hit all people equally.
“Unfortunately, what usually happens with cycles in unemployment is that the lower-skilled workers are hit most,” Russell says.
So, how long will inflation last? Are businesses hiring as much as they did in the past? And is there any hope of getting a pay bump in the current market?
Listen to the full podcast to hear more from Russell on these issues.