A prominent economist is expecting a "barrage of good news" when the latest unemployment figures are released on Wednesday.
Cameron Bagrie, who used to be chief economist at ANZ, says he expects it to fall from 4.7 percent to 4.5 or even 4.4 percent.
"Employment is going to be up and we're going to see accelerating wage growth. As a set of economic statistics, it doesn't get much better than that," he told The AM Show on Tuesday.
With the borders largely closed, employers have been struggling to find people to fill vacancies. Bagrie said in some parts of the country, there were 60 to 70 percent more job ads than normal.
When job hunters have a range of options to choose from, it drives up wages - but the inflation that likely follows could be a "bit of a sting in the tail", said Bagrie.
"I think we're getting into that zone called 'maximum sustainable employment' which is also what's called 'full employment'. It doesn't mean everybody's got a job, but it means we've basically got a labour market that's basically bursting at the seams… the biggest issue is finding staff.
"What we're seeing at the moment as a byproduct of that is accelerating wage growth, that's a really good news story but that's going to feed into inflation... If inflation pressure starts to build, we're going to see the Reserve Bank lift interest rates."
The lack of people to do seasonal work will be alleviated by Monday's announcement of a one-way quarantine-free bubble for registered seasonal workers from Samoa, Tonga and Vanuatu. Bagrie said their absence lately shows New Zealand has become "very reliant" on imported labour, highlighting a lack of local skills.
"It's... encouraged an awful lot of underinvestment in firms' critical assets - their people. Now we're sort of paying the price of that legacy of underinvestment for 10 to 20 years.
"Despite the economy being at virtually full employment at the moment, there's still 190,000 people on the Jobseeker benefit, there's still 350,000 people on all benefits. There's about 35,000 people aged 15 to 19 that are not in employment, education or training… about 10 percent of that 15- to 19-year-old population."
While there will always be a level of unemployment due to economic cycles, Bagrie said getting rid of long-term "structural unemployment" will allow the economy to "grow a little bit faster without having capacity constraints", he says.
"That means a little bit less inflation, and that means lower interest rates. The ball is in our court."
