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Migration keeps lid on wage inflation

NZ NewswireNZ Newswire 7/04/2016 Jonathan Underhill

The largest recorded surge in migration in a century has helped drive New Zealand's economic growth but has also boosted the labour force, keeping a lid on wage inflation, says Reserve Bank Deputy Governor Geoff Bascand.

In a speech at Otago University, Bascand said researchers had created a labour utilisation index that showed supply and demand in the labour market "have been broadly in balance since early 2014, creating little upward pressure on wages."

"Stronger than expected labour supply, and greater than expected slack, has been a factor in our assessment that monetary policy should remain accommodative," he said.

Annual inflation was just 0.1 per cent in 2015 and is forecast to have picked up to just 0.4 per cent in the three ended March 31.

The March quarter consumer price index is due for release on April 18 and will help financial markets assess whether the Reserve Bank will cut the official cash rate on April 28 or hold off until June 9, the two options seen as most likely.

Bascand said much of the weakness in inflation can be attributed to the decline in commodity prices and a high New Zealand dollar "but the higher productive capacity of the economy from rapid growth in the labour force also explains some of the weakness in inflation".

The New Zealand economy has created 180,000 jobs since 2011, driven by population growth and increased participation. In that time the population has increased by about 250,000, with half of that coming from net migration, he said. Average private sector hourly wages rose 0.2 per cent in the fourth quarter for a 2.5 per cent annual increase, government figures in February showed.

New Zealand has continued to post record net migration, with a 67,400 gain in the 12 months ended Feb. 29, led by arrivals from Australia, China and the Philippines.

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