New Zealand’s record immigration may add to risks for inflation
New Zealand is seeing a record inflow of migrants, adding to risks that inflation pressures may persist longer than the central bank expects.
Net immigration rose to 110,245 in the year ended on 31 August, Statistics New Zealand said on Wednesday in Wellington. The gain comprised the arrival of about 152,850 non-New Zealand citizens, offset by citizen departures of almost 42,600.
The South Pacific nation has eased its immigration policy to relieve labour shortages that became acute when the border was shut during the Covid-19 pandemic. While more workers have begun to reduce pressure on wages, they may also add to demand for goods, services and housing which in turn could keep inflation above the Reserve Bank’s target for longer.
“We are mindful that a persistently strong net immigration boost will have implications for the economic and domestic interest rate outlook,” said Mark Smith, senior economist at ASB Bank in Auckland. “We expect the RBNZ to take out insurance and to retain restrictive OCR settings.”
Last week, the RBNZ held the Official Cash Rate at 5.5% and said rates may need to remain at a restrictive level for a more sustained period of time. Legislators said upside surprises to immigration may encourage growth in domestic demand for longer than expected.
ASB expects the OCR won’t rise further, but will remain at 5.5% until early 2025.
The age, occupation and incomes of the new workers add to signs they won’t put as much pressure on prices as occurred in previous immigration upswings, Smith said.
Economists also say the volatility in the immigration data makes it difficult to determine the impact of the new arrivals on the economy. Today’s data were revised to show a net 27,500 migrants arrived in the three months through July – that was 5,200 more than was reported a month ago.