RBNZ survey of Expectations, NZD

The expectations form RBNZ’s latest survey shows inflation over coming years will remain high. The trend is seen higher in recent quarters looks like arrested and the expectations easing at some of the key medium-term horizons.

Lets look at the details, expectations for inflation one year ahead is consistent at 4.9%. Expectations at this short horizon will follow actual inflation closely. And the latest survey expects the risk of high inflation of 7.3%int the year to June, that lack of movement will be welcome news for the RBNZ.

Central Bank’s main focus is on expecting long horizon for the next couple of years. This is a better guide to how businesses will adjust between prices and wages, and signal if the inflation target is viewed as decent. Today’s news will also have been welcomed by the central bank.

This two year measure expected will reduce to 3.1% from 3.3% last quarter. Same as, the five year ahead measure reduced to 2.3% which was 2.4% previously, while expectations for inflation in 10 year’s time remained steady at 2.1%. Today’s expectation of easing inflation will leave the RBNZ feeling more comfortable that the risks of high inflation becoming attached in the economy are easing off. That is particularly important given given the current many decades high in actual inflation and related risks of a wage-price spiral.

Even so, todays survey still points to strong inflation pressures in the New Zealand economy and reinforces the case for rate rises. Forecast is of around 50bp rise at the next week’s RBNZ policy meeting.

Expectations are:
One year ahead: 4.86% which was 4.88%
Two years ahead: 3.07% which was 3.29%
Five years ahead 2.33% which was 2.42%
Ten years ahead 2.13% which was 2.11%