Households fear inflation could hit 5%, according to Reserve Bank survey of expectations

The Reserve Bank's Household Expectations Survey shows people are increasingly downbeat on the economy. Photo / Mark Mitchell

New Zealand households expect the inflation rate to breach the Reserve Bank’s target over the next couple of years, according to the bank’s quarterly Household Expectations Survey.

The median annual inflation rate for the year ahead, picked by 1004 households surveyed between April 21 and May 1, was 5%.

This was a jump from the 4% figure households pinpointed when surveyed three months earlier, before the war in the Middle East escalated.

The median annual inflation rate households picked for two years ahead was also high, at 4% – an increase from the 3% they picked in the prior quarter.

Households had a more dramatic outlook than professional forecasters.

Professionals surveyed by the Reserve Bank at the end of April expected the annual rate to rise to 3.4% in a year’s time, before falling to 2.5% in two years.

Inflation expectations are important for the Reserve Bank, which is tasked with keeping the annual rate between 1% and 3% in the medium term.

“If medium-term inflation expectations increase, then inflation is likely to become more persistent,” the Reserve Bank said when it last reviewed the Official Cash Rate (OCR) on April 8.

The bank suggested it would look through fuel price spikes in the initial instance, but might need to hike the OCR more aggressively if inflation became embedded.

It recognised the sluggish economy could go some way to keeping inflation at bay, and limit the extent to which businesses could hike prices and employees could demand higher wages.

The annual inflation rate remained at 3.1% in the March quarter, according to the latest available data.

On April 8, the Reserve Bank forecast the rate rising to 4.2% in the June quarter.

It will deliver an updated set of economic forecasts when it next reviews the OCR on May 27.

The bank is broadly expected to keep the OCR at 2.25%. However, it may signal hikes for later in the year.

Coming back to the survey of households, they were pessimistic when asked whether they believed they would be able to find employment quickly if they lost their job.

On average, respondents said there was a 38.7% chance they would be able to find a job within three months.

While this was an improvement from the previous quarter, respondents have been increasingly downbeat since 2024, when they believed there was about a 50% chance of finding a new job quickly.

Respondents were also asked to rate how likely they were to miss mortgage or rent payments in the next three months.

The average renter believed there was a 21% chance they’d miss a payment, up from 14.8% the previous quarter.

The average mortgage holder believed there was a 14.1% chance they’d miss a payment, down from 17.2%.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.

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