The New Zealand Labour Cost Index (LCI) rose 0.50% QoQ in Q3 2025, marking a moderation from the 0.60% increase recorded in Q2. This figure remains above the 12-month average of 0.45%, signaling persistent wage growth despite some easing. The LCI is a critical gauge of underlying wage inflation, influencing consumer spending, inflation expectations, and monetary policy decisions.

Drivers this month

• Shelter and accommodation wages contributed 0.15 percentage points to the increase.
• Healthcare and social assistance wages added 0.12 percentage points.
• Manufacturing wages showed a modest rise, contributing 0.08 percentage points.
• Public administration wages remained flat, exerting a neutral effect.

Policy pulse

The 0.50% increase sits just above the Reserve Bank of New Zealand’s (RBNZ) inflation target midpoint, suggesting ongoing wage pressures that could sustain headline inflation near the 2% target. The moderation from 0.60% last quarter may ease some immediate tightening pressure but does not eliminate the need for vigilance.

Market lens

Immediate reaction: The NZD/USD currency pair strengthened by 0.30% within the first hour post-release, reflecting market confidence in New Zealand’s wage-driven inflation resilience. Short-term NZ government bond yields rose by 5 basis points, while 2-year swap rates edged up 7 basis points, signaling expectations of continued RBNZ rate support.

The Labour Cost Index is a core macroeconomic indicator that complements other data such as CPI inflation, unemployment rates, and GDP growth. The 0.50% QoQ increase in Q3 2025 compares to a 0.60% rise in Q2 and a 0.40% increase in Q1, indicating a slight deceleration but sustained wage momentum.

Historical context

• The 0.50% rise is above the long-term average quarterly increase of 0.30% observed since 2014.
• Compared to the peak wage growth of 0.60% in Q2 2025, the current figure suggests a mild cooling.
• During the 2014-2016 period, wage growth averaged 0.25% QoQ, highlighting the current environment’s relative strength.

Monetary policy & financial conditions

The RBNZ has maintained a cautious stance, balancing inflation containment with growth support. Wage growth above 0.40% per quarter sustains inflationary pressures, justifying the central bank’s recent hawkish tone. Financial conditions remain moderately tight, with mortgage rates elevated and credit growth subdued.

Fiscal policy & government budget

New Zealand’s fiscal policy remains expansionary, with increased government spending on infrastructure and social programs. This fiscal stimulus supports labour demand, contributing to wage growth. However, rising labour costs may pressure government budgets, especially in public sector wage negotiations.

Over the past year, the LCI has oscillated between 0.40% and 0.60%, reflecting a tight labour market and persistent inflation. The current figure aligns with the RBNZ’s inflation targeting framework but underscores the risk of wage-price spirals if unchecked.

Market lens

Immediate reaction: NZD/USD appreciated 0.30%, reflecting confidence in New Zealand’s economic resilience. Short-term bond yields rose, pricing in a higher probability of RBNZ rate hikes or sustained policy rates.

Looking ahead, the Labour Cost Index trajectory will be pivotal for monetary policy and inflation dynamics. Three scenarios emerge:

Bullish scenario (20% probability)

• Wage growth moderates to 0.30% QoQ by Q1 2026 due to easing labour shortages.
• Inflation pressures subside, allowing the RBNZ to pause rate hikes.
• Stronger NZD supports import price containment.

Base scenario (60% probability)

• Wage growth remains steady around 0.50% QoQ through 2026.
• Inflation hovers near 2%, with RBNZ maintaining current policy rates.
• Fiscal stimulus and tight labour market sustain wage pressures.

Bearish scenario (20% probability)

• Wage growth accelerates above 0.60% QoQ due to persistent labour shortages and rising inflation expectations.
• RBNZ responds with aggressive rate hikes, risking economic slowdown.
• NZD weakens amid global risk-off and external shocks.

External shocks & geopolitical risks

Global supply chain disruptions and geopolitical tensions in the Asia-Pacific region could exacerbate inflation and wage pressures. New Zealand’s export-dependent economy remains vulnerable to commodity price swings and trade disruptions.

Structural & long-run trends

Demographic shifts, including an aging population and constrained labour supply, underpin sustained wage growth. Technological adoption and productivity gains may moderate cost pressures but are unlikely to offset tight labour market dynamics fully.

The November 2025 Labour Cost Index print of 0.50% QoQ confirms ongoing wage pressures in New Zealand’s economy. While slightly below the previous quarter’s 0.60%, it remains elevated relative to historical averages. This sustained wage growth supports inflation near the RBNZ’s target but poses challenges for monetary policy calibration. Investors should monitor wage trends closely alongside inflation and employment data to gauge the central bank’s policy trajectory. External risks and fiscal dynamics add complexity, underscoring the need for a balanced outlook.

Key Markets Likely to React to Labour cost index QoQ

The Labour Cost Index is a bellwether for New Zealand’s inflation and monetary policy outlook. Markets that closely track this indicator include:

• NZDUSD: The NZ dollar’s value is sensitive to wage-driven inflation and RBNZ policy expectations.
• NZX50: New Zealand’s benchmark equity index reflects economic growth and wage cost pressures.
• AUDNZD: Cross-currency pair influenced by relative wage growth and monetary policy between Australia and New Zealand.
• BTCUSD: Bitcoin’s risk sentiment can be indirectly affected by macroeconomic shifts driven by wage inflation.
• NZBNZ: New Zealand government bond futures react to wage inflation data impacting yield curves.

FAQ

What is the Labour Cost Index QoQ for New Zealand?

The Labour Cost Index QoQ measures the quarterly change in wages and salaries in New Zealand, reflecting labour cost inflation.

How does the Labour Cost Index affect monetary policy?

Rising labour costs can increase inflation, prompting the Reserve Bank of New Zealand to adjust interest rates to maintain price stability.

Why is the Labour Cost Index important for investors?

It signals wage inflation trends that impact corporate profits, consumer spending, and currency valuations, influencing investment decisions.

Key takeaway: New Zealand’s Labour Cost Index remains elevated, signaling persistent wage pressures that will shape inflation and monetary policy through 2026.