The labour market is exceptionally tight, the Reserve Bank says.
But it is not freaking out about it.
Employment is above the "maximum sustainable" level the bank's mandate requires it to support.
But governor Adrian Orr was at pains on Wednesday to head off any suggestion that the bank sees a 1980s-style tornado of a wage/price spiral heading our way.
"Well-behaved" was his description of wage-setting behaviour, so far at least.
And he noted that nominal wages have been rising, but not as fast as consumer prices so that, overall, real wages have been falling.
Of the 17 indicators the bank monitors to judge the state of the labour market, 10 are at or near their highest level since March 2000.
The unemployment rate fell to 3.4 per cent in the September quarter even as the participation rate — the proportion of working age people in the labour force — rose.
And the underutilisation rate — a broader measure of labour market slack which includes part-timers who would like more hours and people available to work but not actively looking for a job — also recorded a sharp fall.
The Reserve Bank forecasts the unemployment rate to stay around 3.4 per cent through 2022, half a percentage point lower than it expected in August, before the Delta variant struck, and still to be below 4 per cent by March 2024.
And it expects the labour cost index to climb from 2.5 per cent now to 3.6 per cent by March 2023, by which time it expects consumer price inflation to have dropped (just) back below the top of the bank's 1 to 3 per cent target band.
The bank notes the chorus of concern about labour shortages, especially of skilled workers, in surveys of business sentiment and its own discussions with businesses.
"Businesses are reporting they are holding on to staff even during periods of reduced trading. This reflects difficulties in obtaining and retaining staff in a highly competitive labour market." Looking forward, though, a key uncertainty is what will happen to the supply side of the market when the drawbridge at the border is lowered next year.
One of the assumptions underpinning the bank's forecast that it will need to raise the official cash rate by at least another 1.25 percentage points by the end of next year (and another half a percentage point in 2023) is that "access to workers from abroad will remain limited by border restrictions during at least the first half of 2022."
The Government's announcement on Wednesday of a timetable for the cautious reopening of the border bears out that assumption.
But while relaxing border restrictions should make it easier for firms to address skill shortages, it could also have the effect of encouraging young New Zealanders to join the Kiwi diaspora once the risk of being stranded overseas is removed.
The incentive for the young to take themselves and their taxpayer-subsidised educations offshore in search of better pay and career prospects can only have been increased by runaway house price inflation putting home ownership out of reach for so many of them.
The monetary policy committee discussed the outlook for net migration and how it could affect labour supply and concluded there could be a net loss of labour in the near term.
The bank cites the tight labour market as one of the capacity constraints which pose a risk that immediate relative price shocks, like high global oil prices, could spread into more generalised price rises.
But when asked about the risk of a self-reinforcing wage/price spiral, Orr struck a sanguine tone.
"We are very comfortable with what we have observed with regard to wage-setting behaviour," he said.
"Labour is the most sought-after resource at present and you see nominal wages rise. They are not rising to any extreme level. They have been operating in a very well-behaved manner, and behind CPI inflation, so real wages are flat if not declining."
He went on to argue that while some people might be in a position to command higher wages, not all could.
"There is a broad dispersion," he said.
It was a very different dynamic in the labour market than, say, 20 years ago.
Consumer price inflation hit an annual rate of 4.9 per cent in September, well above the 4.1 per cent the Reserve Bank had forecast — and to be fair, above other forecasters' expectations too.
But just over half of the 4.9 per cent was explained by steep rises in transport and construction costs, quite disproportionate to their weightings in the CPI, of 12.4 and 9 per cent respectively.
The increase in transport costs was driven by oil prices, not labour costs.
And while tradesmen's wages may have had an influence on the 12 per cent rise in construction costs — not an expense that affects most households — the launch of a Commerce Commission inquiry into building materials suggests much of the explanation lies there.
In any case, the prices making up the other 77.6 per cent of the CPI between them contributed only 2.3 percentage points to the inflation rate.
Nevertheless, the Reserve Bank expects inflation to get worse before it gets better, hitting 5.7 per cent over the next six months before falling back to the 2 per cent mid-point of its target band by late 2023.
In other words, it sees a wave that has yet to peak, but not a tsunami that just keeps on coming.
It acknowledges, however, that "nevertheless there is a risk that high inflation becomes embedded in price- and wage-setting behaviour, particularly if goods and labour shortages carry on for longer than is assumed."
Or as Orr put it, "it is something where we have a watching brief".