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While the RBNZ's aggressive interest rate hikes have smashed New Zealand's housing market, where prices have fallen nearly 18% nationally, and the broader economy (GDP fell 0.6% in the December quarter), the central bank is concerned that a population boom may prop up demand and inflation.
"The increase in net inward migration is providing some relief in a very tight labour market, but the net impact on demand – including for housing – is uncertain, as is the impact on inflationary pressure," the bank's meeting summary observed.
"Members noted this increase in migration is assumed to be temporary. Migration is assumed to fall back towards the average inflows seen in the years preceding COVID, and settle at an inflow of around 36,000 working age people per year."
But it isn't clear yet whether the extra demand generated by a bigger population will add more to inflation than the extra labour supply will subtract from wages and cost increases.
"Views on the outlook for the inflationary impact of migration were mixed," the statement noted.
"Some members saw the risk that strong migration inflows could persist for longer than assumed in current projections and boost spending and inflation.
"Other members saw the risks as more balanced. In particular, there were not yet obvious signs that high rates of migration were affecting house prices and spending – and there were reasons to believe that current strength reflects pent up demand, and will prove temporary. In addition, migration could further alleviate labour shortages."
On the other hand, a return towards pre-COVID tourist flows would keep adding to demand.
"The Committee noted that while the total number of international visitors remains below pre-COVID-19 levels, its recovery since the border was reopened has supported aggregate demand," the statement observed.
"There has also been a recent change in policy settings in Australia that eases the pathway to citizenship for emigrating New Zealanders. The effect of this on both the quantity and composition of net migration has yet to be seen."
Australia's Reserve Bank also recently noted that it wasn't entirely clear what effect the nation's record migration intake would have on inflation, when the boost to demand was balanced against the increased supply of workers.