A new survey has offered some respite to the Reserve Bank (RBNZ) with inflation expectations falling for the first time in two years.
The RBNZ monitors the two-year inflation expectations when setting interest rates. Photo: RNZ / Alexander Robertson
The closely followed quarterly survey of expectations of top business leaders and analysts has average one-year inflation expectations easing marginally to 4.86 percent from 4.88 percent in the previous quarter, the highest since late 1990.
The two-year expectations, which the RBNZ monitors closely when setting interest rates, showed an average inflation forecast of 3.07 percent from 3.29 percent.
Consumer prices rose 7.3 percent in the year ended June, but the survey suggested it may have peaked.
"Today's easing in inflation expectations will leave the RBNZ feeling more comfortable that the risks of high inflation becoming embedded in the economy are easing off last year," Westpac senior economist Satish Ranchhod said.
Longer term inflation expectations - five and 10 years - were close to the RBNZ's desired target of 2 percent.
The survey, albeit of a small sample, will likely confirm the RBNZ's approach that it cannot yet afford to ease up on its pace of interest rate rises.
"We caution that this is just one survey with a low number of responses, but it suggests that the RBNZ have not lost the battle on inflation," ASB senior economist Mark Smith said.
"We expect a 50 basis point official cash rate hike next week, and for the OCR to move higher over 2022 as the RBNZ strive to get inflation under control. Once that is done, the OCR can be lowered, and we expect OCR cuts from 2024."
The survey conducted for the RBNZ by the Nielson Group also showed expectations of the OCR hitting a peak of 3.5 percent over the next 12 months, while economic growth slows more quickly than previously thought, and unemployment is expected to bounce off current lows to about 3.8 percent in the coming year and hitting 4.7 percent in two years.
Expectations of house prices remained pessimistic with the fall in prices seen steepening to 5.8 percent in the coming year from 4.4 percent in the previous survey. It was the biggest decline since the question was added to the survey in 2017, although a modest lift was seen in 2024.