A new survey has delivered some sour news to the Reserve Bank with inflation expectations rising to their highest level in more than 30 years.
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The closely followed quarterly survey of expectations of top business leaders and analysts has average one-year inflation expectations hitting 4.4 percent from 3.7 percent in the previous quarter, the highest since late 1990.
The two-year expectations, which are regarded as the more closely followed by the RBNZ for setting interest rates, showed an average inflation forecast of 3.27 percent from 2.96 percent in the previous survey, a 31-year high.
Consumer prices rose 5.9 percent last year, and are expected to edge higher in the next few months.
The strong survey, albeit of a small sample, will likely confirm the RBNZ's thinking that it has no alternative to raising the OCR if it is to get some control over inflation as soon as possible.
The survey conducted for the RBNZ by the Nielson Group also showed expectations of solid rises in the Official Cash Rate (OCR), unemployment to remain at record lows, and a drop in house prices over the current year before resuming growth.
The RBNZ started raising its cash rate twice last year and is expected to continue at its next meeting on 23 February and through the rest of the year to around 2.5 percent as it battles to get inflation back within its 1-3 percent target zone.
The survey pointed to four or five OCR rises of 25 basis points this year (quarter of a percentage point).
And expectations of house prices showed a wide range of forecasts - between a fall of 10 percent and a rise of 15 percent - with the average pointing to a marginal fall in the coming year, before a rise of more than 2 percent the year after.