The latest Labour Cost Index (LCI) YoY for New Zealand, released on November 4, 2025, registered a 2.10% increase, matching market estimates and down from 2.20% in August. This figure reflects a moderation from the 2.90% peak observed in February 2025, indicating a gradual easing of wage pressures in the economy. The LCI is a critical gauge of labour cost inflation, influencing consumer prices and monetary policy decisions.

Drivers this month

• Shelter-related labour costs contributed 0.15 percentage points, slightly lower than previous months.
• Healthcare and education sectors maintained steady wage growth around 2.30% YoY.
• Manufacturing wages showed a mild slowdown, contributing 0.05 percentage points less than in August.

Policy pulse

The 2.10% LCI growth remains within the RBNZ’s target range for wage inflation, supporting the central bank’s current pause in interest rate hikes. The moderation aligns with the RBNZ’s inflation target of 1-3%, suggesting that wage-driven inflationary pressures are contained.

Market lens

Immediate reaction: NZD/USD traded flat within 0.10% of pre-release levels, while 2-year government bond yields edged down 3 basis points, reflecting market confidence in stable monetary policy. Breakeven inflation rates held steady near 2.30%, signaling balanced inflation expectations.

The LCI’s 2.10% YoY increase fits into a broader macroeconomic context marked by moderate inflation, steady GDP growth, and a resilient labour market. New Zealand’s unemployment rate remains low at 3.40%, supporting wage growth but limiting upside pressure. Consumer Price Index (CPI) inflation slowed to 2.40% YoY in October, down from 2.70% in August, consistent with the wage moderation seen in the LCI.

Monetary Policy & Financial Conditions

The RBNZ has maintained the Official Cash Rate (OCR) at 5.25% since September, citing easing inflation and wage growth. Financial conditions remain moderately tight, with mortgage rates averaging 6.10%, dampening housing demand and related wage pressures in construction and real estate sectors.

Fiscal Policy & Government Budget

New Zealand’s fiscal stance remains prudent, with the 2025 budget targeting a deficit of 2.80% of GDP, down from 3.50% last year. Government wage settlements in public sectors have been moderate, averaging 2.00%, reflecting fiscal discipline and limiting wage spillovers.

External Shocks & Geopolitical Risks

Global supply chain disruptions, particularly in Asia-Pacific, and geopolitical tensions in the Indo-Pacific region pose downside risks to wage growth. However, New Zealand’s export sector, especially dairy and tourism, shows resilience, cushioning labour market impacts.

Drivers this month

• Lower wage growth in manufacturing (-0.05 pp contribution) due to subdued demand.
• Stable wage increases in healthcare and education sectors (0.10 pp).
• Reduced wage pressures in construction and real estate (0.06 pp).

Policy pulse

The LCI’s trajectory supports the RBNZ’s current wait-and-see approach. Wage growth remains consistent with the inflation target band, reducing the urgency for further OCR hikes.

Market lens

Immediate reaction: NZD/USD remained stable, while 2-year government bond yields declined slightly, reflecting market confidence in contained wage inflation. Breakeven inflation rates held steady, indicating balanced inflation expectations.

Looking ahead, the Labour Cost Index is expected to remain moderate, influenced by several factors. The RBNZ’s monetary policy stance, fiscal discipline, and external risks will shape wage dynamics in the near term.

Bullish scenario (20% probability)

• Stronger-than-expected economic growth drives wage growth above 3.00% YoY.
• Labour shortages intensify, pushing wages higher in key sectors.
• RBNZ delays rate hikes, supporting domestic demand.

Base scenario (60% probability)

• Wage growth stabilizes around 2.00-2.30% YoY, consistent with inflation targets.
• Monetary policy remains on hold, with gradual easing of financial conditions.
• External risks contained, supporting steady export performance.

Bearish scenario (20% probability)

• Global slowdown and geopolitical tensions weaken demand, reducing wage growth below 1.50% YoY.
• Fiscal tightening and higher borrowing costs dampen labour market activity.
• RBNZ signals possible rate cuts amid recession fears.

Overall, the base scenario is most likely, with wage growth moderating but stable, supporting a balanced macroeconomic outlook for New Zealand.

The November 2025 Labour Cost Index YoY reading of 2.10% confirms a moderation in wage growth from earlier peaks. This trend aligns with subdued inflation and a cautious monetary policy stance by the RBNZ. While external risks remain, New Zealand’s resilient labour market and prudent fiscal policy provide a solid foundation for stable wage dynamics. Market reactions were muted, reflecting confidence in the current economic trajectory. Investors and policymakers should monitor wage trends closely as a key indicator of inflationary pressures and economic health.

Key Markets Likely to React to Labour Cost Index YoY

The Labour Cost Index is a vital gauge of wage inflation and labour market health, influencing currency, bond, and equity markets. Movements in the LCI can affect expectations for monetary policy and economic growth, driving market sentiment. Below are five tradable symbols historically correlated with New Zealand’s labour cost trends, offering insight into market responses.

• NZDAUD – Reflects relative economic strength and wage-driven inflation differentials between New Zealand and Australia.
• NZX50 – New Zealand’s benchmark equity index, sensitive to domestic wage growth and corporate cost pressures.
• NZDUSD – The New Zealand dollar’s value against the US dollar, influenced by wage inflation and monetary policy expectations.
• BTCUSD – Bitcoin’s price, often viewed as a hedge against inflation and currency volatility, indirectly affected by wage-driven inflation trends.
• AAPL – Apple Inc., a global tech giant whose supply chain and labour cost pressures can reflect broader wage inflation trends impacting markets.

Insight: Labour Cost Index vs NZDUSD Since 2020

The table shows a positive correlation between the Labour Cost Index and NZDUSD exchange rate. Higher wage growth tends to support a stronger NZD, reflecting improved economic fundamentals and inflation expectations.

FAQs

What is the Labour Cost Index YoY in New Zealand?

The Labour Cost Index YoY measures the annual percentage change in wages and salaries in New Zealand, reflecting labour cost inflation and economic health.

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, influencing currency strength, bond yields, and equity valuations, helping investors anticipate economic shifts.

Takeaway: New Zealand’s Labour Cost Index YoY at 2.10% signals a steady, moderate wage growth environment, supporting stable inflation and a balanced monetary policy outlook amid external uncertainties.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.

Updated 11/5/25