NZ businesses expect faster - but still muted - inflation ahead

New Zealand businesses see inflation creeping up over the coming year, but their longer term expectations remain anchored around the middle of the central bank's target range.

Firms see the consumers price index reaching 2.09 percent over the next 12 months, up from the 1.86 percent they predicted in the Reserve Bank's September quarter survey. Two-year-ahead inflation expectations eased to 2.03 from 2.04 percent, the midpoint of the central bank's 1-to-3 percent target band.

The result reinforces expectations the central bank will continue to signal rates are on hold for the foreseeable future at tomorrow's review. 

New Zealand's inflation has been muted in recent years, with a strong currency and flat wages helping restrain price increases. This has allowed the Reserve Bank to keep the benchmark rate at a record low 1.75 percent level. 

Today's survey shows a net 63.8 percent of respondents believe current monetary conditions are "easier than neutral". This setting indicates a stimulatory economic environment. That is down from a net 75 percent in the preceding quarter’s survey. A net 52.2 percent of respondents believe monetary conditions in one year’s time will be easier than neutral. 

Expectations for annual real gross domestic product growth increased from 2.32 percent to 2.44 percent one year ahead and lifted from 2.20 percent to 2.44 percent for two years ahead. 

The unemployment rate in one year is expected to be 4.4 percent and increase to 4.47 percent in two years' time.  Earlier today, Statistics New Zealand said the unemployment rate in the September quarter was 3.9 percent, the lowest in 10 years. 

The RBNZ survey shows businesses also expect wages to rise more quickly in the short term, as year-ahead wage growth lifted to 2.92 percent from 2.88 percent. Two-year-ahead growth lifted to 3.04 percent from 2.93 percent.

Firms expect the Kiwi dollar will be at 65 US cents and 91 Australian cents in March 2019. 

It was recently at 67.43 US cents and 93.17 Australian cents. 

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