New Zealand labour market statistics for the three months to March showed stronger jobs growth, with employment up 0.8 percent on the quarter after advancing 0.2 percent in the three months to December. Employment grew 2.5 percent on the year after increasing 1.3 percent previously. The unemployment rate was unchanged at 3.4 percent, while the participation rate rose from 71.7 percent to 72.0, a record high since the series was introduced in 1986.

Hours worked fell 0.3 percent on the quarter after a previous increase of 1.1 percent, with officials noting that this decline was largely attributable to the impact of cyclones and extreme flooding during the quarter. These weather events also impacted data collection in some parts of the country but, despite these challenges, officials advise that they consider today's release to be"fit for purpose" as a measure of labour market conditions during the quarter.

Headline private sector wages growth remained strong in the three months to March. The labour cost index rose 0.9 percent on the quarter, easing from growth of 1.1 percent previously, while year-on-year growth in this index picked up from 4.3 percent to 4.5 percent.

Employment is expected to rise a quarterly 0.3 percent in the first quarter following a limited 0.2 percent rise in the fourth quarter.

The Labour Cost Index (LCI) measures movements in base salary and ordinary time wage rates and overtime wage rates. The non-wage component measures cost changes including annual leave and statutory holidays; superannuation; ACC employer premiums; medical insurance; motor vehicles available for private use low interest loans. The LCI is a measure of the extent to which changes in businesses' input costs put pressure on the output prices they charge for goods and services.

As a measure of labour cost, the LCI helps the Reserve Bank of New Zealand measure inflation. The RBNZ, with an inflation target range of 1 percent to 3 percent uses this index in addition to other price indices to measure possible pressures in consumer prices.

RBNZ officials are always on the lookout for the prospects of inflationary pressures. Wage pressures tend to percolate when economic activity is booming and the demand for labor is rising rapidly. During economic downturns, wage pressures tend to be subdued because labor demand is down. By tracking labor costs, investors can gain a sense of whether businesses will feel the need to raise prices. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall.