Pricing intentions rise, but economists still see December hike in play
New Zealand businesses are holding their nerve despite another surge in fuel prices, with confidence steady and more firms planning to lift prices. For mortgage advisers, the October survey adds to a finely balanced case for a December official cash rate (OCR) hike, and with it the outlook for mortgage rates.
ANZ’s Business Outlook survey for October showed business confidence edging up 1 point to +53. Firms’ expectations for their own activity eased 2 points to +46, while reported activity compared with a year earlier rose 4 points to +15. ANZ’s broader take was that “the confidence shock that brought the economy to a near stop in Q2 has not been repeated”, with some firms surprised by how well demand has held up despite higher prices.
Westpac senior economist Michael Gordon said the steadiness in activity measures suggests that “businesses are simply learning to live with higher fuel costs”. His First Impressions note pointed out that pump prices have broken through the records set in the early stages of the Iran conflict. QV CostBuilder data released the same day shows diesel prices up 19% in a month and 76.2% above their February level.
Pricing pressure builds, but increases stay modest
The fuel shock is showing up most clearly in the survey’s price gauges. A net 52% of firms now plan to raise prices within three months, the highest share since May, and the average expected increase of 1.9% is the largest since June. Cost expectations remain very high, with a net 82% of businesses anticipating higher costs, unchanged from September.
Year-ahead inflation expectations were broadly steady at 3.3%. ANZ noted that firms’ numerical cost expectations have stayed contained, but cautioned that they are being measured against an already elevated base. “The starting point matters,” ANZ’s economists said.
Gordon said the size of expected price rises remains well below what was seen early in the conflict, which may support the view of some Reserve Bank of New Zealand (RBNZ) committee members that second-round inflation effects are smaller than first feared.
Wage expectations for the next 12 months were steady at around 2.8%. ANZ said this points to some upside risk to the RBNZ’s wage forecasts, but only at the margin, a modest signal for advisers assessing borrower income and borrowing capacity. Official figures due on 4 November will test that signal. In a separate preview, Westpac’s Gordon also expects unemployment to ease from 5.6% to 5.5%, with annual wage growth lifting only slightly to 2.1%.
Construction and credit hold steady
Residential construction intentions slipped from +22 to +19, though ANZ described the sector as holding up. Commercial construction intentions fell to +19, but ANZ said both measures are showing resilience to higher interest rates. Steady building costs may be helping. QV’s data also shows overall construction trade rates rose just 0.1% in the latest month, despite the diesel surge. Expectations for the ease of obtaining credit sat close to neutral, at +0.5.
Investment intentions dropped from +23 to +18, while employment intentions held at +17, with every sector in positive territory. Services sector export intentions jumped to a 25-year high, which ANZ linked to the weak New Zealand dollar and strong tourism bookings.
What it means for the rate outlook
The survey lands a day after the RBNZ held the official cash rate at 2.75% in a split 4–3 vote. Westpac said the results were unlikely to shift either camp: committee members who backed a hike will point to resilient activity, while those who voted to hold will note the limited pass-through of costs.
Westpac still expects a 25-basis-point increase at the 9 December Monetary Policy Statement, though Gordon described it as “far from a done deal”. ANZ’s next survey, due on 30 November, will be one of the last major data points before that decision.
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