Brian Easton says that by the time the 2026 general election comes around in November, New Zealand will be experiencing higher unemployment alongside lower inflation compared to the previous election in 2023

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

At New Zealand's general election in November, unemployment is likely to be higher and inflation lower than it was at the last general election in 2023. 

It was headline news that the unemployment rate rose 5.6% in the June 2026 quarter, its highest level since March 2015. In fact, the unemployment rate has been creeping up over the last few years; the rate hovered around 3.2% during 2021 and 2022. 

Nor was the rise unexpected once US President Donald Trump began his attack on Iran and international oil supplies (as well as those of some other vital chemicals) were limited by the choking of the Strait of Hormuz. It is not just NZ; the world economy isn’t prospering either.

In its May 2026 Budget Economic and Fiscal Update (BEFU), Treasury had forecast the unemployment rate to come in at 5.5% for the June quarter, so the actual rate of 5.6% was a fraction higher. That may have been because of measurement noise, or it may suggest the NZ economy is slowing down faster than Treasury expected. We shall have to wait for October’s Pre-election Economic and Fiscal Update (PREFU) to find out what they now think.

In many ways, despite its role in the headlines, the unemployment rate is not a good indicator of the state of the labour market. No single number can be. It does not allow for the fact that some people are underemployed – that is, they have a job but would like to work more hours – while others have given up seeking employment (often in despair) but would snap up work if it became available.

For some purposes, the labour force participation rate, which measures the proportion of those at working ages, is more useful. I had to use it when I was writing about Māori unemployment in my book, Heke Tangata. You can see why in the latest figures. The Māori unemployment rate was 10.8% in the June quarter – in comparison, the Pākehā rate was 4.2%. 

But that underestimates the stress in Māori unemployment because while 66.8% of Pākehā in the age group had jobs, only 59.6% of Māori did. So, a higher proportion of Māori were not even seeking jobs. Even that measure does not capture that the Māori underutilisation rate – those with jobs but looking for more work – was almost double the Pākehā rate. (The Pasifika situation is similar to Māori.)

If we look at the total labour force participation rate, we find it was much the same in the June 2026 quarter as it has been over the last year. That means the economy has been creating jobs (33,000 in the last year). What happened in the latest June quarter – ignoring measurement noise – is that more people were looking for jobs. Even so, there were fewer jobs in June 2025 than there were in the period from June 2023 to December 2024. The economy has not been performing well jobwise for almost two years.

Explanations of why it has not performed well are obscured by political prejudices. For what it is worth, my view is that the economy is suffering a period of long-term stagnation, which I do not particularly blame on one party or the other. I do blame them, or their advisers, for not thinking through what this secular stagnation means. 

In fact, I am rather struck that our politicians are not doing much thinking at all. What alert politician would select November 7 for election day, when Statistics NZ is committed to releasing its next unemployment statistics for the September quarter three days earlier, on November 4? (The US midterm elections are a day earlier, but the results will not be out until the 4th.)

What is the updated figure likely to look like? The Treasury BEFU thought that the unemployment rate would peak at 5.5% in the June 2026 quarter and be down a fraction to 5.4% in the September quarter. Peaks are notoriously difficult to predict and, in any case, Treasury may revise its forecast because of the new information that becomes available between BEFU and PREFU. Let’s go with their current forecast (until the times do alter), although I am more pessimistic and expect the peak to be later in the year or even early next.

At the time of the last election, the September 2023 unemployment rate was 4.0%, so Treasury’s BEFU thought unemployment would increase by over a third in the three years. BEFU also expects the annual inflation rate, as measured by Stats NZ’s Consumers Price Index (CPI), to be 3.7% on a year-to-year basis, down from 5.6% in September 2023. (The OBEGAL operating balance for the June 2023 year was a surplus of 1.3% of GDP; it is projected to be a deficit of 2.6% in the June 2026 year.) CPI inflation came in at 4.1% in the June 2026 quarter.

What is the public to make of unemployment up 1.4% and inflation down 1.9% over the three years? Arthur Okun, a much respected economist, suggested that we should combine the two numbers into a ‘misery index’. There are some technical difficulties which I skip here, and which Okun might have resolved had he lived longer than 52 years.*

To cut to the chase, American studies suggest that the unemployment rate should be weighted four times the inflation rate. What they are saying is that while inflation hits all households, unemployment hits fewer households but much harder, while the sluggish economy, which causes it, affects many more.

Let’s use that quadruple rate for New Zealand. (Any politician who wants to use different weights is welcome to support funding the local research required to calculate it more precisely.) Then the misery index was at 21.6 at the time of the last election and is expected to be up at 25.3 at the time of the next one. Add in the deterioration in the budget deficit and the economy is not doing well.

One cannot tell how this will affect the NZ election. If the economy matters – it may not – the issue is how the public feels about unemployment and inflation – which may not be the same as the factual statistics. (Rob Muldoon said the public would not know a budget deficit if it tripped over it in the street.) As far as an economist is concerned, the Government’s defence does not sound very convincing, but neither does the Opposition attack.

* The index mixes an annual change (inflation) with a level (unemployment). That is a scientific no-no. The Reserve Bank (RBNZ) got into trouble during the Asian financial crisis when it did this.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.