years. simply plotting the unemployment and inflation data ( figure 8 ), it can be observed that there is now less inflation for a given level of unemployment and less apparent responsiveness of inflation to changes in unemployment. however, it is also clear that the overall relationship between unemployment and inflation has been quite weak and that other causal factors, both international and domestic, have been playing an important role. 5 6 / 12 bis central bankers'speeches source : stats nz, rbnz. chart excludes volatile cpi observations affected by the new zealand gst increase in 2010. the measurement of economic slack is becoming more difficult. total potential output – or capacity – is not directly observable and it may be that the increasing flexibility and mobility of labour is causing us to understate our measures of capacity. we will increasingly need to refer to a range of labour market indicators in addition to unemployment when assessing the extent of slack in the labour market. there is not much doubt that an increase in international labour mobility has also affected wage inflation in new zealand. in some of the traditional non - traded sectors like construction there is now greater scope for employers to meet skill shortages through international hires, even though recent stretch in the construction industry has seen wage costs increasing for certain occupations and skills. on a national scale, we have experienced ongoing high levels of inward migration. over the past 3 years, the population has grown by around 6 percent, of which less than a third is from natural growth. an increasing share of the inward migration has been on work visas ( figure 9 ), thus contributing to higher productive capacity. in this way, emerging excess demand for labour has been moderated on the supply side as a result of increased international labour mobility. 7 / 12 bis central bankers'speeches with the new zealand economy becoming generally more integrated with the global economy, we are likely to see less variability in measures of economic slack and also less variability in labour costs, consistent with a flattening of the philips curve. new zealand has always been a price taker for goods traded in the international markets. it now appears that, with labour mobility and globalisation effects, we are increasingly a price taker in “ non - traded ” goods and services ( figure 10 ). for example, suppliers of education and tourism services are now operating in increasingly competitive international markets. they are facing international competition for their services and also for their labour inputs. both sectors have been growing as a share of gdp. 8 / 12 bis central bankers'speeches

mit press ). moreover, with the share of long - term unemployed in total unemployment unusually elevated in recent years, there is an ongoing discussion about whether short - and long - term unemployment have differential effects on inflation. see robert j. gordon ( 2013 ), “ the phillips curve is alive and well : inflation and the nairu during the slow recovery, ” nber working paper series 19390 ( cambridge, mass. : national bureau of economic research, august ) ; and mark w. watson ( forthcoming ), “ inflation persistence, the nairu, and the great recession, ” american economic review. see aspen publishers ( 2010 ), blue chip economic indicators, vol. 35, no. 4 ( april 10 ). these forecasts were similar to the central tendency of fomc participants ’ projections for the unemployment rate at the end of 2011 submitted in conjunction with the april 2010 fomc meeting, which ranged from 8. 1 to 8. 5 percent. see board of governors of the federal reserve system ( 2010 ), “ minutes of the federal open market committee, april 27 – 28, 2010, ” press release, may 19. see aspen publishers ( 2010 ), blue chip financial forecasts, vol. 29, no. 4 ( april 1 ). bis central bankers ’ speeches forecast of the federal funds rate in mid - 2011 had fallen to 0. 8 percent, and by october the forecasters expected that the rate would remain in the range of 0 to 25 basis points throughout 2011, as turned out to be the case. 13 not only did expectations of policy tightening recede, the fomc also initiated a new $ 600 billion asset purchase program in november 2010. thus, while the reductions in the unemployment rate through 2011 were roughly as forecast in early 2010, this improvement only came about with the fomc providing a considerably higher level of accommodation than originally anticipated. this experience was essentially repeated the following year. in april 2011, blue chip forecasters expected the unemployment rate to fall to 7. 9 percent by the fourth quarter of 2012, with the fomc expected to have already raised the federal funds rate to near 1 percent by mid - 2012. 14 as it turned out, the unemployment rate forecast was once more remarkably accurate, but again this was associated with considerably more accommodation than anticipated. in response to signs of slowing economic activity, in august 2011 the fomc for the first time expressed its forward guidance in terms of the calendar, stating that conditions would likely