Inflation expectations and wages will be the key focus in New Zealand this week, with both expected to be muted when figures are released today and tomorrow.
Westpac senior economist Anne Boniface said yesterday most Reserve Bank surveys of inflation expectations had gone down in recent years, leaving them at very low levels.
"This is a key concern for the Reserve Bank given the potential for low expectations to translate into downward pressure on wages and prices.''
The most closely watched measure of inflation expectations was the Reserve
Bank's own survey of two-year ahead expectations.
After falling to a low not seen for more than 20 years earlier this year, the measure appeared to be finding a base in the second quarter, she said.
However, with the latest expectations survey occurring very soon after the lower than expected second quarter result was announced, there was a risk expectations took another step down.
A further lowering would strengthen the case for a sub 2% official cash rate.
"Even if expectations remain stable - or if they edge higher - this would not be enough to dissuade the Reserve Bank from cutting at its upcoming August interest rate review,'' Ms Boniface said.
Tomorrow, Statistics New Zealand would release the Quarterly Employment Survey and the Labour Cost Index for the three months ended June.
The Household Labour Force Survey figures, usually released at the same time, were delayed and would not be released until August 17.
The delay was due to the redevelopment of the survey earlier in the year and would be the first full release under the new definitions for what constituted "actively searching for work''.
It had been previously announced the first-quarter unemployment rate had been revised down to 5.2% from 5.7% under the new definition.
ASB economist Daniel Snowden expected a small rise in the overall jobless rate to 5.3%. It would be driven by a predicted small lift in the participation rate to 68.8% from 68.7% as participation continued to rebound from the recent low of 68.3%.
Also, annual net migration marked another record high in June, adding to the growth in labour supply.
"Meanwhile, we expect wage inflation to remain fairly muted.''
Strong net migration continued to be a theme in the labour market, and elsewhere, keeping the supply of labour high and constraining wage growth inflation, he said.
Migration had kept labour supply elevated and, as a consequence, wage growth had been muted.
ASB was forecasting a 0.48% lift in the Labour Cost Index across all sectors. Although firmer than the first quarter's 0.36%, the lift was partly driven by the increase in the minimum wage.
"We see the gap between public and private pay narrowing a touch,'' Mr Snowden said.
Also of note this week would be the United States employment report due out on Friday.
Following a five-month downward trend in the three-month average non-farm payrolls growth, from 282,000 to 114,000 in May, non-farm payrolls bounced sharply in June, recording an outsize gain of 287,000.
In the household survey, month-to-month volatility in the participation rate continued to create instability in the unemployment rate, which rose to 4.9% in June.
Ms Boniface said in coming months it was likely the three-month average employment gain would stabilise at between 150,000 and 170,000.
"That is a robust pace of growth, particularly given unemployment is at its full employment level.''
Payrolls were expected to come in at 185,000, she said.
For the household survey, stability in the participation rate was likely to mean the unemployment rate remained unchanged at 4.9%.
