Reserve Bank survey shows inflation expected to average 3.7 per cent over next year

Two-year inflation expectations, which are regarded as the RBNZ's target measure, were seen rising to 2.96 per cent from 2.27 per cent. Photo / RNZ

A Reserve Bank survey has shown inflation expectations hitting the highest in more than a decade, adding further weight to the case for interest rates to rise again next week.

A quarterly survey done for the central bank showed respondents expected annual inflation to average 3.7 per cent over the coming year, the highest forecast in 11 years, and well up on the 3.02 per cent in the previous survey.

Two-year inflation expectations, which are regarded as the RBNZ's target measure, were seen rising to 2.96 per cent from 2.27 per cent.

"The RBNZ will be concerned by these figures but will be comforted that longer-term inflation expectations have remained anchored close to 2 per cent," ASB senior economist Mark Smith said.

"We expect a 25bp [basis point] OCR [official cash rate] hike next week but acknowledge the decision will be a very close call, between this and a 50bp hike."

Consumer inflation hit a decade high of 4.9 per cent in the year ended September, although the RBNZ's own core inflation measure sits at 2.7 per cent.

The numbers were stronger than expected and lifted the New Zealand dollar across the board.

The survey, which had a low response rate, showed businesses expected the OCR to continue rising over the next two years, while the surge in house prices was expected to slow over the next two years.

The central bank early last month hiked interest rates for the first time in seven years and signalled further tightening, as it looked to get on top of inflationary pressures and cool a red-hot housing market.