With wages rising and the jobs market at capacity, all eyes are on the Reserve Bank to hike interest rates this month.
Mortgage advisor Mikey Smith says it has been a "battle" to convince home owners to restructure their mortgage rates to a more strategic mix of fixed and floating, after last year's record low offers.
But with economists expecting interest rates to rise again, Smith has been fielding calls from people wanting to re-fix their mortgage rates.
"We've been telling people we're at the bottom of the curve since the end of last year and it's hard to convince people when there are such attractive one-year rates on the table," Smith says. "A lot of people have taken the one-year rates while they were so good."
But the latest labour market statistics for the June quarter show employment has reached full capacity, further cementing expectations that the official cash rate will lift from its emergency low.
Stats NZ data shows unemployment fell from 4.7 percent to 4.0 percent in the second quarter of the year, reaffirming the strong competition recruiters and employers have experienced in hiring workers over the few months.
Under-utilisation, which represents people working fewer hours than they want to, also had a sharp drop from 12 percent to 10.5 percent, nearing a pre-Covid low of 10.1 percent recorded in December 2019.
Wage inflation picked up more than expected, jumping to 2.2 percent year on year, reflecting a tight labour market.
ANZ chief economist Sharon Zollner says about 80 percent of mortgage debt is either floating or fixed for less than a year.
The impact of an interest rate hike will be pretty instant on household spending, Zollner warns.
Mikey Smith says the conversations in recent weeks have changed dramatically. "A guy called this morning wanting a five year rate, I don't want to think about it. I never would've heard that last year.
"Even though the five-year rate is at the 3 per cent range, historically that's still a really good five-year fixed term. If you don't have any plans in the future and you know you're living in your house for the next five years, it's not a bad thing to consider."
ASB chief economist Nick Tuffley says unless there is an unpredictable event like a sudden lockdown, the Reserve Bank will have to lift the OCR by 25 basis points in two weeks' time. ASB expects the OCR to rise to 1 percent by the end of the year.
The bank expects the Reserve Bank will lift the OCR at a slower pace next year, Tuffley says, taking into account the economic impact of rising interest rates. "We expect the OCR will stabilise at 1.5 percent by the end of 2022."
He says the wage growth should also be an incentive for businesses to invest in automation because labour shortages are likely to remain for some time.
“The benefits of making that investment are more assured now."
Kiwibank chief economist Jarrod Kerr expects interest rates to rise from about 2 percent to 4 percent by the end of the year.
Inflationary pressures are likely to stay around for some time with labour shortages and ongoing supply chain disruptions. Firms just can’t seem to get enough labour to plug the holes left by the border closures.
The proportion of employees receiving wage increases of more than 5 percent lifted from 11 percent to 16 percent of all workers. The rise in the minimum wage in April contributed to this quarter’s lift in wage growth, Kerr notes.
Employers are offering special leave, compressed work weeks and hiring bonuses to keep and retain staff.
"A guy called this morning wanting a five year rate, I don't want to think about it. I never would've heard that last year." – Mikey Smith, mortgage advisor
Frog Recruitment managing director Shannon Barlow says work perks are becoming the bare minimum for candidates, as employers offer flexible working hours, bonuses for taking up a job as well as bonuses for sticking till the end of a fixed term contract.
She says recruiters are facing horror stories of candidates “ghosting” employers because they had received multiple job offers and accepted another role after going through the onboarding process.
Kerr says wage inflation rising isn’t necessarily a bad thing if companies can pass on those costs.
“Which we've seen with CPI figures showing inflation jump to 3.3 percent that can hold at that level for a bit longer. It all feels like a lot but when we look back in history we've had much higher bouts of inflation and wage growth.”
“What we're seeing is quite encouraging we're seeing an economy that has not only rebounded from Covid but is back on the path pre-Covid. I'm not worried about inflation.
"I know others are. But I'm encouraged by the lift in wages, particularly how broad based it is.”
The strong employment figures will likely see GDP rise as well.
