Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

NZ labour market 'balance' caps wage inflation

NZ labour market 'balance' caps wage inflation, justifies accommodative policy, RBNZ's Bascand says

By Jonathan Underhill

April 7 (BusinessDesk) - 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 central bank 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. “In view of the close relationship between labour market dynamics and inflation pressures, we will continue to monitor a broad range of labour market indicators to help inform our monetary policy decisions."

Annual inflation was just 0.1 percent in 2015 and is forecast to have picked up to just 0.4 percent in the three ended March 31, based on the bank's last monetary policy statement. 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.

There is a 55 percent probability that the bank will cut the OCR to 2 percent this month, and a 45 percent likelihood it will remain at 2.25 percent, based on the overnight interest swap curve.

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 percent in the fourth quarter for a 2.5 percent annual increase, government figures in February showed.

"Much of the current surge in migration is explained by weakness in the Australian and world economy that has made New Zealand a relatively more attractive place to live," Bascand said. "Because our labour supply has increased at a time when businesses are facing lower world demand, it results in lower wage and inflationary pressures."

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. Migrant arrivals rose 10 percent to 124,200 in the latest 12 month period, from a year earlier, while departures fell 1 percent to 56,900, government figures show. Net migration from Australia was a gain of 1,600, the highest since September 1991 and the fifth straight month of annual gains.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

By May 2018: Wider, Earlier Microbead Ban

The sale and manufacture of wash-off products containing plastic microbeads will be banned in New Zealand earlier than previously expected, Associate Environment Minister Scott Simpson announced today. More>>

ALSO:

Snail-ier Mail: NZ Post To Ditch FastPost

New Zealand Post customers will see a change to how they can send priority mail from 1 January 2018. The FastPost service will no longer be available from this date. More>>

ALSO:

Property Institute: English Backs Of Debt To Income Plan

Property Institute of New Zealand Chief Executive Ashley Church is applauding today’s decision, by Prime Minister Bill English, to take Debt-to-income ratios off the table as a tool available to the Reserve Bank. More>>

ALSO:

Divesting: NZ Super Fund Shifts Passive Equities To Low-Carbon

The NZ$35 billion NZ Super Fund’s NZ$14 billion global passive equity portfolio, 40% of the overall Fund, is now low-carbon, the Guardians of New Zealand Superannuation announced today. More>>

ALSO:

Split Decision - Appeal Planned: EPA Allows Taranaki Bight Seabed Mine

The Decision-making Committee, appointed by the Board of the Environmental Protection Authority to decide a marine consent application by Trans-Tasman Resources Ltd, has granted consent, subject to conditions, for the company to mine iron sands off the South Taranaki Bight. More>>

ALSO: