Short-term inflation expectations lift in RBNZ survey

Tuesday 7th May 2019

Business managers and finance professionals lifted their short-term inflation expectations in the latest Reserve Bank survey but held their longer-dated view steady.

Respondents to the central bank's quarterly survey predict consumer price inflation of 1.97 percent a year from now, up from the 1.82 percent rate expected in the March survey. Two-year expectations were for inflation of 2.01 percent versus 2.02 percent in the prior survey.

A net 64.7 percent of respondents believe current monetary conditions are easier than neutral. That is down from a net 68.3 percent in the previous quarter’s survey. "Easier than neutral" indicates rates which are low enough to stoke growth.

The survey comes just ahead of the Reserve Bank of New Zealand's monetary policy statement and rate decision - the first to be made by committee - tomorrow afternoon.

Economists are on the fence as to whether the central bank might cut rates by 25 basis points to a record low 1.50 percent; markets are pricing in about a 60 percent chance.

"The decision will be a very close call, with strong arguments for both cutting and holding," Westpac Bank's head of NZ strategy Imre Speizer said. "The stronger argument is for cutting: the RBNZ has not met its inflation target for seven years."

The survey's respondents trimmed their outlook for economic growth. They now expect GDP to rise an annual rate of 2.19 percent one year ahead, down from 2.38 percent in the prior survey. Two years ahead, they see it lifting at an annual rate of 2.17 percent versus 2.36 percent in the prior survey.

The unemployment rate is seen at 4.3 percent in one year and 4.32 percent in two years. The latest Stats NZ data had unemployment at 4.2 percent in the March quarter.

One-year ahead expectations for annual growth in wages are steady around 2.89 percent, while two-year ahead expectations increased marginally from 2.86 percent to 2.93 percent in the latest survey.

(BusinessDesk)

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