If anyone is looking for reasons why the Reserve Bank should
remain on high alert, yesterday's migration data provided the
Statistics New Zealand data showed net migration was at a
10-year high in the year ended May.
Monthly net migration, while down slightly on April, was
still strong in May.
Net migration is easing only because the Australian job
market has stopped getting worse.
The latest monthly number is still the second-highest since
Net migration received considerable attention in the Reserve
Bank's June Monetary Policy Statement when it increased
official interest rates to 3.25%.
The central bank caught the market by surprise by adopting a
hawkish view, indicating interest rates could again rise next
month instead of the expected pause.
It is now expected the official cash rate will be at 3.75% by
the end of the year to reach a peak of either 4.5% or 5%,
depending to which economist you listen.
May's result was stronger than the Reserve Bank was
It was forecasting annual migration of those aged 15 and over
to reach 33,000 in the June quarter but the number for May
was already above 34,000.
Along with recent strong consumer confidence and economic
growth, the migration data was another tick for a follow-up
rise in the OCR next month.
The BNZ says the annualised net monthly inflow indicates a
peak of 48,000 people arriving this year.
But the bank also believes the peak has been reached,
although it will be a while before it falls sufficiently to
take pressure off domestic demand.
New Zealand's economy is going gangbusters but there will
continue to be a down side.
The high net migration means employment will remain tight and
unemployment will fall only slowly as migrants compete with
locals for new jobs.
Salaries and wages will continue to rise slowly because of
the competition for jobs.
House prices in Auckland and Christchurch will affect the
rest of the country because the Reserve Bank will continue to
push up interest rates, taking some steam out of those two
markets but at the same time hurting sales in areas like
Dunedin, Timaru and Invercargill where housing pressures are
New Zealand is close to becoming a nation with a two-tier