Unemployment data due this week is likely to show a reversal in trends, as the number of people out of work rises above 4%.
The unemployment rate dropped from 4.4% to 3.9% in the quarter to September, but Westpac senior economist Michael Gordon said he expected it to have risen to 4.2% in the quarter to December.
"Even if the unemployment rate nudges above 4% again, it would still imply a tight labour market by historic standards."
Statistics NZ labour market survey data is due out on Thursday, followed by the Reserve Bank’s monetary policy statement.
"A range of surveys and anecdotes point to an increasingly tight labour market over 2018," Mr Gordon said.
He expected an unemployment rate above 4% for December, as it would be consistent with the underlying trend.
"With workers increasingly hard to find, we expect a gradual pick-up in wage growth in the coming years, though the quarterly result itself may not be all that revealing," he said.
In Otago and Southland, separate data on the manufacturing and services sectors has consistently showed acute labour shortages in a number of industries, limiting the growth of some businesses.
Mr Gordon said that the quarter to September was dominated by an unprecedented drop in youth unemployment.
"The narrowness of that result makes it more vulnerable to a reversal."
However, there was also a small drop in unemployment among older workers, which suggested that at least the direction of the move was genuine.
Mr Gordon said Westpac’s forecast also implied softer employment growth during the December quarter, compared with the 1.1% jump recorded in the September quarter.
He believed employment would ease from the 1.1% gain to a 0.2% gain.
He was expecting to see a 0.6% increase in the labour cost index for the quarter, boosted by the pay settlement for nurses, which was agreed in August but only about a third of which made the cut-off date for the September quarter survey.
"That aside, we’re looking for, at most, a mild lift in private sector wage growth," he said.
