A Reserve Bank survey of expectations is pointing to higher inflation expectations. Photo / NZME
A Reserve Bank survey of expectations is pointing to higher inflation expectations. Photo / NZME
New Zealand inflation expectations are running at their highest level in decades, according the Reserve Bank's latest survey.
The survey showed year-ahead inflation expectations came to 4.40 per cent, up from 3.70 per cent at the last survey released in November.
Today's data showed the two-year-ahead inflation expectations of 3.27per cent from 2.96 per cent at previous survey, and the highest reading in 31 years.
Westpac senior economist Satish Ranchhod said the survey would be a concern for the Reserve Bank as it showed higher inflation expectations have become more embedded.
"We are seeing signs that inflation pressures are becoming more embedded in the New Zealand economy," he said.
"Expectations are pushing up and it's not just in the near term.
"Long-term inflation expectations have also risen and that's going to be a cause for worry for the Reserve Bank.
"With these high expectations it's going to make it harder for them to bring it back into the [1 to 3 per cent] target, even after the current cost pressures ease off," he said.
Ranchhod said the survey reaffirmed the case for rate hikes from the Reserve Bank over the course of the year, but he doubted the bank would depart from the 25 basis point norm and go for a 50 basis point hike in the near term.
"I still think a 50 basis point hike is unlikely."
The central bank's next review of its official cash rate is due on February 23.
Government bond yields pushed up to multi-year highs after US inflation data sparked selling across the world's debt markets.
Higher-than-expected US CPI data has sparked a sell-off in world debt markets. Photo / AP
By late afternoon the two-year Government bonds were at 2.29 per cent - up 10 basis points - and their highest level since January 2017.
In longer-dated stock, the 10-year bond yields were at 2.807 per cent, up 7.2 basis points.
The movements largely mirrored the price action in the US and other markets after the release of higher than expected US inflation data.
The US consumer price index rose 7.5 per cent last month compared with January last year, its fastest annual pace since 1982. and driving the 10-year Treasury yield to 2 per cent for the first time since August 2019.
"All of the rates have been up right across the yield curve right out to the 10 years and beyond," Westpac NZ senior market strategist Imre Speizer said.
"Clearly the US market was very sensitive to any further rises in inflation," he said.
"It was not a huge rise versus expectations, but it demonstrates how sensitive the US markets are to the possibility that the Fed will have to do even more catch-up hiking," he said.
"They are thinking that the Fed will have to act even quicker now and that it will have an even bigger job on its hands," Speizer said.
