The chief economist at New Zealand's central bank believes its tightening of monetary policy is bringing inflation down, while warning that record migration was making their job harder.
Like many advanced economies, NZ is battling a post-COVID inflation wave.
Consumer price inflation (CPI) has moderated to 4.7 per cent in the year to 2023 after peaking at 7.3 per cent about 18 months earlier.
The Reserve Bank of New Zealand (RBNZ) is enjoying a three-month summer break between monetary policy committee meetings, having left the official cash rate (OCR) at 5.5 per cent in November.
Chief economist Paul Conway gave a speech on Tuesday morning to fill the interregnum, suggesting the bank would continue its hawkish approach.
"Recent economic data suggest that monetary policy is working, with the economy slowing and inflation easing but we still have a way to go," he said.
Alongside the CPI drop, NZ's economy is in reverse, with gross domestic product (GDP) shrinking by 0.3 per cent in the September 2023 quarter - and by 0.9 per cent per capita.
While that might normally be a sign for central bankers to take their foot off the accelerator, Mr Conway said revisions from Stats NZ in its economic indicators showed capacity pressures may remain elevated.
"Private demand in the economy, which is more interest-rate sensitive, has mostly been revised up, with stronger consumption and business investment than first reported," he said.
NZs migration surge is also fuelling demand.
About 250,000 migrants came to NZ in 2023, with about half of them leaving.
"That's a net gain of almost 130,000 people, or nearly 2.5 per cent of the population," Mr Conway said.
"Strong inward migration has clearly helped alleviate labour shortages ... but the demand side effects of migration are also apparent."
Mr Conway said migration had bolstered rent prices and construction costs, adding to inflation, and may soon lead councils to increase their rates, another source of inflationary pressure.
"Annual non-tradable inflation, which is a rough approximation of inflation generated within the New Zealand economy, came in at 5.9 per cent, which is higher than we estimated," he said.
"To sum up, monetary policy is working, with the economy slowing and inflation falling but we still have a way to go to get inflation back to the target midpoint."
