This week's labour market numbers are comprehensively strong.
They are back to the levels the Reserve Bank, in its last pre-Covid monetary policy statement, described as at or slightly above maximum sustainable employment.
So that leg of its dual mandate is met while the other, price stability, has been breached.
If these were normal times, pushing the official cash rate back towards the level the bank now considers neutral — around 2 per cent — would be a no-brainer.
But these are not normal times.
Applying peacetime precepts of monetary policy to what should be thought of as a wartime economy risks a serious policy mistake.
It is an enemy armed with spike protein rather than high explosive, but is nonetheless cunning and lethal. And at the moment, as our neighbours to the north and west can attest, it is rampant.
To use terms like "robust" and "resilient" to describe the economy is absurd. "Precarious" and "lucky so far" would be more like it, and will be at least until the population is vaccinated. That is, until the new year.
The latest labour market numbers reflect an economy whose border is closed, or only slightly ajar, which has cut off the supply of both skilled and cheap labour, while preserving the essential underpinning of the recovery — our Covid-free status.
Neither of those two conditions can be expected to last indefinitely.
In the meantime, though, the news from the labour market is cheerful.
Both the unemployment rate (4 per cent) and the broader under-utilisation rate (10.5 per cent) are back to pre-Covid levels.
The most inflation-predictive measures of labour market slack among the suite of indicators the Reserve Bank monitors have also improved: youth unemployment and unemployment among Māori and Pacific peoples.
The number of so-called NEETs — 15- to 24-year-olds who are neither employed nor undergoing education or training — fell 23,000 to 70,000, the lowest level since September 2019.
The labour force participation rate has improved to 70.5 per cent, and the prime-age employment rate (the proportion of 15- to 64-year-olds employed) at 77.6 per cent is historically high and ranks third-highest in the OECD.
So has this tightening of the labour market pushed up wages to the point where we risk being sucked into the tornado of a wage-price spiral?
There is not much sign of that yet. Average ordinary-time hourly earnings in the private sector rose a decent but hardly scary 0.7 per cent in the June quarter, unchanged from the March quarter. When the public sector and overtime are factored in, the increase was still 0.7 per cent.
The labour cost index, which attempts to measure changes in rates of pay for the same quantity and quality of labour, rose 0.9 per cent in the quarter for the private sector, making 2.2 per cent for the year, and 0.7 per cent and 2.1 per cent respectively when the public sector is included.
It was boosted, Statistics NZ points out, by the increase in the minimum wage on April 1, which saw wage rates in the retailing and accommodation sectors rise 1.7 per cent.
But there was also some evidence of the shortage of skilled labour showing up in the fact that 16 per cent of wage rates rose by more than 5 per cent, the highest share for at least nine years. The share of wage rates rising between 2 and 5 per cent, on the other hand, have yet to return to pre-Covid levels.
The Bank of New Zealand's head of research, Stephen Toplis, makes the point that wages are not the only labour cost to be rising. Others include the "Mondayisation" of statutory holidays which fall on weekends, the new Matariki statutory holiday from next year, and increased sick leave entitlements.
There is also likely to be some drop in productivity as the difficulty in finding skilled labour leads firms to take on less skilled workers, Toplis says.
KiwiBank's chief economist, Jarrod Kerr, reminded us recently that since the global financial crisis at least, the traditional Phillips curve, with an inverse relationship between unemployment and inflation, has been missing in action.
For years pre-Covid, central banks' inflation problem was why it was so stubbornly low. So low that the banks worried inflation expectations were becoming anchored too low, too close to some event horizon around a deflationary black hole.
Was the explanation demographic change? Or globalisation reducing the embedded labour cost of goods? Or technology like that which enables the behemoth Amazon?
It is not obvious that those structural trends will not reassert themselves.
In the meantime, with the border closed, the Phillips curve may have come out of retirement. "For years the suspicion has been that New Zealand wages have been held lower by immigration," Kerr says. "Now we can prove that. Employers have to pay up."
But the key question for the Reserve Bank's monetary policy committee is whether the current strength of demand, which allows firms to pass on higher costs, will prove transitory or persistent.
Is it a wave which will peak and subside, or a tsunami that will just keep on coming, so grab the OCR and head for higher ground? Reasons to be dubious of the tsunami hypothesis are:
• The border closure which has tightened the labour market has also reduced a fundamental driver of demand: population growth. The Delta variant should mean the border is reopened later and more gingerly than might have been expected.
• The wealth effect has been a major channel the Reserve Bank has relied on to provide support for households' spending. Surely, though, the 20 per cent-plus increase in household wealth recorded in the year to March represents a peak, from which that turbocharger of demand will decline. With builders flat out, a fifth of the 3.3 per cent increase in CPI inflation in the June year was construction costs, and the Government's agreeing to the use of debt-to-income curbs on housing lending indicates that the authorities have not given up on reining in house price inflation.
• The kiwi dollar is undervalued by traditional metrics. But it is unlikely to remain so if New Zealand gets too far ahead of the international pack in tightening monetary policy. A higher exchange rate would be good from the standpoint of reducing tradeables inflation. But for export incomes, not so much.