Net migration 4,000 in May, taking annual net migration to 36,400; highest annual net migration since November 2003

By Bernard Hickey

Net migration ran hot again in May as more migrants arrived and fewer New Zealanders left to work in Australia, increasing the risks the Reserve Bank will have to tighten monetary policy more than already forecast to cool inflationary pressures.

The Reserve Bank and Treasury have both warned in the last six weeks that a rise in net migration to over 40,000 could force interest rates up by a further 50-100 basis points over the next couple of years. They are already forecasting a rise in floating mortgage rates to around 8% so a rise in net migration closer to 45,000 would push floating rates towards 8.5%.

Economists said annual net migration is headed north of 40,000 and possibly as high as 45,000.

Statistics New Zealand has reported seasonally adjusted net migration fell to 4,000 in May from 4,100 in April, but that annual net migration of 36,400 in the year to May was the highest annual total since the year to November 2003 and more than triple the average inflow over the last 20 years.

Economists said the net migration was stronger than expected and reinforced expectations of another Official Cash Rate hike on July 24.

Westpac Senior Economist Felix Delbruck said net migration was on track to exceed 40,000 by the end of the year and the monthly net migration of 3,980 was above his forecast for 3,800.

"Today's outturn is probably stronger than the RBNZ was expecting (it was forecasting annual migration of those aged 15+ to reach 33,000 in the June quarter, and the number for May is already above 34,000)," Delbruck said.

"Along with recent strong consumer confidence and GDP data, that's another tick in the box for a follow-up hike in July," he said.

Migration scenarios

The Reserve Bank included a scenario for a rise in net migration to a peak 45,200 by mid 2015 in its June quarter monetary policy statement, which is above its central scenario for a peak of 37,000 in the December quarter of this year. The bank forecast this higher migration track would increase house price inflation by 4 percentage points to 10.9% by mid 2015, while the 90 day bill rate would rise to 5.84% by mid 2017 rather than the central forecast of 5.3%.

Treasury forecast in its Budget on May 15 that a rise in net migration to 41,500 by the December quarter of this year (rather than its central forecast for a peak of 38,000 in the September quarter), would increase the 90 day bill rate by around 100 basis points by mid 2015.

ANZ Senior Economist Mark Smith said annual net migration was on track to exceed 45,000 by the end of the year, with annualised net migration already running at 47,840 in the last three months.

"Strong migration gains are adding to the economy’s potential growth rate, but strong growth in demand is still outstripping that," Smith said.

"The OCR needs to continue the move to more neutral settings and we expect a further lift in July," he said.

Statistics NZ said the surge in net migration since September 2012 was due largely fewer New Zealand citizens leaving for Australia (down 2,000), more New Zealand citizens returning from Australia (up 600) and more non-New Zealand citizens arriving (up 1,300).

In the latest year, New Zealand had a net loss of 9,700 migrants to Australia, well down from 32,900 a year earlier.

"Net gains were recorded from most other countries, led by India (6,600), China (6,300), and the United Kingdom (5,700)," Statistics NZ said.

There was a seasonally adjusted net loss of 200 migrants to Australia in May, unchanged from April.

"The losses recorded in these two months were the lowest ever for this series, which began in January 1996. The highest net loss to Australia was 4,300 in February 2001, just before an immigration policy change that restricted access to welfare benefits for New Zealand citizens arriving after that date," Statistics NZ said.

There were 99,900 migrants (unadjusted) who arrived in the May 2014 year, up 14% from the previous year.  Migrant departures fell 22% to 63,500, creating a net gain for the year of 36,400, up 6,200 on the previous year.

"The last time net migration was higher than the latest figure was in the November 2003 year (36,700). New Zealand recorded its highest-ever net gain of 42,500 migrants in the May 2003 year. The highest net outflow was 43,600 in the July 1979 year. Over the last 20 years (December 1994–2013 years), New Zealand's annual net inflow of migrants has averaged 11,700," Statistics NZ said.

"The net loss of 9,700 people to Australia in the May 2014 year was well down from the loss of 32,900 in the May 2013 year. The latest year's loss resulted from 31,700 departures to Australia (down from 49,300 in the May 2013 year), partly offset by 22,000 arrivals (up from 16,500). In both directions, most migrants were New Zealand citizens," it said.

Americans and Japanese visitors arrive

Elsewhere, visitor arrivals to New Zealand reached a high of 161,400 in May, partly due to more visitors from the United States and Japan.

"Visitor arrivals are higher than they have ever been for a May month," population statistics project manager Susan Hollows said.

"Holidaymakers arriving from the United States and Japan contributed to the increase in visitors in May."

In the May 2014 year, visitor arrivals numbered 2.78 million, up 6% from the May 2013 year.

New Zealand's top four sources of visitors were Australia, China, the United States, and the United Kingdom.

New Zealand residents departed on 198,200 overseas trips in May 2014, up 9% from May 2013. Over the year, New Zealand residents took 2.23 million trips, up 3% from last year.

(Updated with more detail, chart, reaction, background)