Wage growth near its trough

Labour markets in both countries have tightened in recent months. In Australia, the unemployment rate has fallen from a peak of 7.1% to just 6.4% in January. And other measures of spare capacity have tightened even more sharply. The underemployment rate is now below its pre-virus level at 8.1%, on par with the lowest rate since 2014. And job vacancies and surveys on the difficulty of finding labour show businesses are struggling to find staff. Admittedly, the 0.6% q/q jump in wages in Q4 was partly driven by one-off factors but given the tightness in the labour we think wage growth will rise in earnest before long. In New Zealand, the unemployment rate fell in Q4 despite the end of the wage subsidy scheme. Annual wage growth continued to weaken from 1.9% to 1.6% but our expectation of a further tightening in the labour market should support an increase before long. We expect wage growth to rise from 1.4% in Australia and 1.6% in New Zealand in Q4 to around 2.5% in both countries by the end of 2022.