At the April official cash rate review last week, there seemed some added nervousness by Reserve Bank governor Graeme Wheeler about the inflation outlook.
ASB chief economist Nick Tuffley said the interesting and unknown factor was what impact low inflation was having on wage setting behaviour.
''We think the odds of an OCR cut have got to 50:50 and that future meetings could see an OCR cut if inflation/wage related data are soft. At this point, we are not explicitly forecasting an OCR cut, but are very close to the line.''
The labour market data on Wednesday would not be a stand alone smoking gun for a June OCR cut.
However, the data could provide important signs of the impact of very low inflation on wage setting behaviour and more detail of the amount of slack existing within the labour market, Mr Tuffley said.
Business surveys suggested employment growth was robust in the first quarter of 2015. The strong employment growth observed last year was expected to carry on into the three months ended March.
ASB was forecasting employment growth of 0.9% in the quarter, down on the 1.2% recorded in the December quarter but in line with the average quarterly growth over the year.
The pace of annual employment growth should remain at about 3.5% - stronger than the 3% growth rate forecast by the Reserve Bank within its March Monetary Policy Statement, he said.
Last quarter, the labour force participation rate leapt 0.6% to a record high 69.7%. The working age population had been boosted by record migration flows.
''We expect a high proportion of those new migrants are attracted to New Zealand by the relative strength of the labour market and are entering the labour force.''
Outflows from New Zealand remained low, Mr Tuffley said. He expected that to continue while offshore labour markets remained weaker than New Zealand - particularly the Australian labour market.
The combination of strong net migration flows and workers encouraged to find jobs from the economy's recent strength meant the participation rate could still lift higher this year.
''If our forecasts of employment growth and participation prove correct, the unemployment rate should hold steady at 5.7%. It may seem counterintuitive, but our strong employment growth forecast points to upside risks to the participation rate and employment rate.''
The same trend was observed in the preceding labour report when the unemployment rate rose despite 1.2% employment growth over the quarter, he said.
Labour market data could be notoriously volatile and most weight should be put on the measures of employment growth within the survey.
With the economy and employment growing at an annual rate of more than 3%, on the surface, it was surprising wages were not growing at a similar sort of rate, Mr Tuffley said.
The Labour Cost Index for the private sector was expected to lift by 0.4% in the quarter and 1.9% for the year.
The public sector Labour Cost Index was even more restrained, up only 1.1% for the year ended December. ASB economists were forecasting a ''modest'' 1.7% annual increase for the all sector index caused mainly because of the slack within the labour market.
''We expect the financial markets - which are now pricing in a rate cut from the Reserve Bank this year - will focus on the inflation aspects of the survey rather than growth, and will be sensitive to weak increases in the Labour Cost Index and other wage measures such as average hourly earnings.''
Forecasts
• Employment growth of 0.9%, annual employment growth a ''robust'' 3.5%.
• Labour market participation will lift.
• Unemployment rate will remain at 5.7%.
• Labour market slack should keep a lid on wage inflation with wage inflation remaining under 2%
