RBNZ survey shows inflation expectations easing, but rate rises remain on the cards
New Zealand's short-term inflation expectations have eased sharply, but economists say the Reserve Bank is still on track for further increases to the official cash rate before year end.
Forecasters expect further OCR hikes
The OCR currently sits at 2.5%, following a 25-basis-point increase at the RBNZ's July meeting.
Respondents to the Reserve Bank's September quarter Survey of Expectations, comprising 38 business leaders and professional forecasters, put the mean expected OCR at 2.73% by the end of the September quarter, up 39 basis points on the prior survey, with the one-year-ahead expectation lifting 20 basis points to 3.21%.
Westpac senior economist Satish Ranchhod (pictured left) wrote that the central bank had already flagged more tightening to come.
"The RBNZ hiked the official cash rate 25bps at their last policy meeting in July and signalled further hikes over the coming months," Ranchhod wrote, adding: "We're forecasting two more 25bp hikes this year, most likely at the RBNZ's September and December meetings."
ASB shares a similarly hawkish view. Senior economist Mark Smith (pictured right) wrote in the bank's own note that a "3.25% by year end beckons," with a higher OCR possible into 2027 should inflation prove more persistent than currently expected.
Inflation expectations ease on fuel price falls
The survey's inflation figures nonetheless point to some relief.
One-year-ahead inflation expectations fell 81 basis points to 2.60%, down from 3.41% in the June quarter and back to levels last seen in Q1. Two-year-ahead expectations eased 19 basis points to 2.34% — the lowest reading recorded this year. Longer-term expectations moved slightly higher, with the five-year measure firming to 2.31% and the ten-year measure barely changed at 2.20%, both sitting just above the RBNZ's 1–3% target midpoint.
Smith's ASB note attributed the swing in short-term expectations largely to fuel prices, noting April's spike in retail fuel costs was followed by a jump in inflation expectations, with the subsequent pullback in prices helping pull expectations back down.
Ranchhod struck a similar note, writing: "All of the measures of expected inflation are either at or slightly below where they were six months ago, before the Iran conflict."
Labour market and housing signals mixed
Unemployment expectations eased across both horizons, to 5.24% one year ahead and 4.9% two years ahead, even though actual seasonally adjusted unemployment rose to 5.6% in the June quarter — a divergence suggesting forecasters expect the labour market to turn before year end.
Wage inflation expectations ticked higher, to 2.78% and 2.93% respectively, while annual house price inflation expectations lifted across both timeframes, reaching 1.47% one year ahead and 3.27% two years ahead — modest increases ASB says are unlikely to trouble the Reserve Bank.
For more information, read the Westpac and ASB commentaries.
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