Recent migration data is showing a big jump in the number of people migrating to New Zealand, with ASB saying the country is on track for record figures.
In the year to February, annual net migration – the number of people coming into the country minus the number who left – was about 52,000, the latest figures show.
But economists predict fresh data, which is due to be released on Friday, will show a continued rise.
ASB chief economist Nick Tuffley told AM on Tuesday New Zealand could crack the 100,000 net migration figure.
“The pace at the moment is running at about 100,000. You look at recent months, if that pace keeps up, we look like we will crack that 100,000 net figure,” Tuffley told co-host Ryan Bridge.
“If we do, it would basically be the biggest figure that we’ve seen on record and that’s certainly ahead of the 90,000 we saw just before we closed the borders shut in early 2020.”
What does this mean for inflation?
The arrival of more people into New Zealand will also have an impact on inflation.
Annual inflation skyrocketed from 4.9 percent in the September 2021 quarter to a whopping 7.2 percent in December.
It currently sits at 6.7 percent after a slight drop in March. It comes after years of low inflation.
“The impacts are on both sides. On one side, you have more people who will be wanting to eat something, shop and live somewhere, use transportation and that can add to the infrastructure challenges,” Tuffley said
“Having said that, one of the really pressing challenges we’ve had over the last few years is a shortage of people. So for one thing, we’ll find businesses are able to more readily find people they need.”
Wage growth will be a key area in curbing inflation. Data from Seek released last month showed advertised salaries are growing at a solid pace, up 4.4 percent in the year to the February quarter.
This is the second-fastest growth rate recorded since the data started being collected in 2016. The fastest growth recorded was in the year to November 2021, when advertised salaries rose by 4.6 percent.
But the surge in migration could see wage growth slow – to the disappointment of Kiwis – but will help reduce persistently high inflation levels.
“The other thing is since we’ve got very strong wage growth at the moment when you suddenly have a lot more people turning up saying, ‘Hi, I’m here and I can work’, it will start to reduce that wage pressure,” Tuffley said.
“So a really key thing looking ahead is going to be looking at, what does this mean for wage growth? Because if the wage growth starts to slow, that will help with inflation slow and it will help the Reserve Bank eventually achieve its job – so [it’s] really pivotal from that angle as well.”
Tuffley said the surge in migration will help bring the price of goods down – but it won’t be immediate.
“It should help that process because there have been a huge amount of costs that businesses have had to take on over the last few years, but particularly wage growth is the one that’s likely to hold inflation up for longer,” Tuffley told AM.
“If we do see the wage growth moderate, it does help that overall inflation story. It’s a bit of a catch-22, it feels like if wages decline, it feels like we’re not getting the compensation for inflation that we would like.
“The issue is we do need to get on top of inflation and get it back under control and that’s the thing that will enable the Reserve Bank to get interest rates back down to a more normal level a bit quicker as well.”
Huge increases to the official cash rate (OCR) have been made by the Reserve Bank since late 2021.
The OCR has risen from 0.25 percent in August 2021 to the current rate of 5.25 percent as it tries to bring spiralling inflation – sitting at 6.7 percent – under control.
Tuffley predicts there is one more there will only be one more increase to the OCR before it reaches its peak.
Watch the full interview with Nick Tuffley in the video above.