The New Zealand economy has soaked up any spare capacity and will be moving into a period of excess demand this year, meaning it could get tougher for employers to get workers, an economist says.
The Bank of New Zealand-Business New Zealand Performance of Services Index (PSI), was up more than a point at 57.5 in December, compared with 56.4 in November. A reading about 50 indicates expansion.
During the past year, the PSI averaged 55.8, compared with 53.9 in 2012.
All five main sub-indices were in expansion last month, including new orders and business, activity and sales, and employment.
Bank of New Zealand (BNZ) economist Craig Ebert said the economy was picking up and becoming much more generalised.
"It really tells us that growth is not just good, it's getting quite strong and it's going to get stronger," Mr Ebert said.
"The issue we see ahead of us is how the economy is going to be able to cope with that in terms of supply.
"Overall I think there will be some pressure coming from the demand side of the economy which will start to lift some of those inflation measures over the next 12 to 24 months."
The economy had soaked up any spare capacity it had during the past few years and if the growth indicators were correct, then the economy would be moving into period of excess demand as soon as this year.
That equated to rising inflation and, in turn, to capacity constraints, including in the labour market, Mr Ebert said.
"It may, for example, turn out that firms find it more difficult to secure staff."
The property and business category of the index nudged up to 57.5 in December, from 57.4 in November, which the BNZ said showed little sign the property market had fallen into a hole since the Reserve Bank introduced lending restrictions.
The retail category hit 74.5 points which, although not adjusted for seasonal effects, was 13.5 points above December 2012.