Foreign worker influx drags on New Zealand wages

[WELLINGTON] New Zealand's record immigration levels are proving a double-edged sword for the economy - boosting consumer demand but also creating low wage inflation due to the influx of workers, the country's central bank highlighted on Thursday.

Reserve Bank of New Zealand (RBNZ) deputy governor Geoff Bascand said strong labour supply spurred by net immigration is a factor in the Pacific nation's accommodative monetary policy.

The statements suggest the central bank still sees the economy operating at low capacity, which would strengthen the case for keeping interest rates low.

"Stronger than expected labour supply, and greater than expected slack, has been a factor in our assessment that it has been appropriate to keep monetary policy accommodative," said Mr Bascand at a speech in Dunedin.

"Unexpectedly strong growth in labour supply, along with the characteristics of the migration cycle, substantially explains why wage and non-tradables inflation pressures have been weaker than expected," he said.

New Zealand's booming immigration has reached record highs this year, with a net gain of 67,400 migrants in the 12 months ending in February, according to Statistics New Zealand.

While the country of 4.7 million has historically been a destination for migrants from Britain, Asia, the Pacific and elsewhere, New Zealanders have also sought employment opportunities abroad, leading to a relatively low net immigration rate.

"Migration's currently at a very elevated level and we do expect that it will remain so over much of the coming year," said Westpac senior economist Satish Ranchhod.

He added that at that point Australia's economy may have picked up and many New Zealanders would move to their Antipodean neighbour, which would bring net migration back down.

The RBNZ said that the New Zealand economy had been expanding steadily in the last five years, with 180,000 jobs added to the economy and only a modest decline in unemployment.

The population had grown by a quarter of a million people in the last four years, with half of that due to migration.

In addition to lower wage inflation, the high New Zealand dollar has been threatening the central bank's inflation target of between one and 3 per cent. Annual inflation is currently 0.1 per cent.

That may force the RBNZ to ease policy at its April 28 meeting, after it surprised financial markets last month by cutting the cash rate a quarter percentage point to 2.25 per cent.

REUTERS