Last year, New Zealand’s working-age population grew at its slowest rate in nine years, adding to signals of a labor shortage that might drive up salaries and inflation.
Statistics New Zealand reported that the number of residents aged 15 and up who might work increased by 26,500 to slightly more than 4.1 million in 2021. This is the smallest growth since 2012, with a 70,500 increase expected in 2020.
Since March 2020, New Zealand’s border has been closed to visitors, and the flood of citizens returning home during the first months of the Covid-19 outbreak has dried up.
The Reserve Bank has begun to raise interest rates as labor shortages have stoked wages and fueled quicker inflation.
If there’s a business out there that can’t get imported labor they are competing in the domestic labor pool to fill those vacancies, so most certainly it is contributing to tightness in the labor market, said Miles Workman, a senior economist at ANZ Bank New Zealand in Wellington. Covid has actually turned out to be much more of a supply shock and therefore an inflationary shock, and that includes wages.
The RBNZ raised the official cash rate twice in the final quarter of 2020, and signaled in November that policy tightening would be needed sooner than planned.
The working-age population is expected to grow by 32,000 in 2021 and 40,000 this year, according to the central bank. It predicted that the unemployment rate will fall to 3.2% in the fourth quarter of 2020, down from 3.4% three months prior.
According to Workman, the risks to the economy’s pricing pressures are on the upside, and they might be increased if Omicron enters the country and causes people to leave the job market. Nonetheless, he noted, there are offsetting downside risks to demand and economic growth that the RBNZ will need to consider when deciding on policy.
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