KEY POINTS:
Business managers expect inflation to be 3.6 per cent in a year - well up on the Reserve Bank's 1 per cent to 3 per cent target range.
The Reserve Bank's September quarterly survey found the average one-year-ahead inflation expectations for the Consumers Price Index were up 0.3
percentage points on the June quarter survey.
It was also up 0.1 percentage points on the two-year-ahead expectation from 2.9 per cent to 3 per cent.
Expectations of an increase in inflation were particularly strong over the next two quarters.
In the June quarter survey, respondents believed inflation would be up 0.7 per cent for the September quarter but that has now leaped to 1.1 per cent.
Actual CPI figures show inflation was 4 per cent in the year to June- up from 3.4 per cent in the year to March.
But if the 1.1 per cent figure was included in the September year, annual inflation would be equivalent to a rate of 4.7 per cent.
A high level of those surveyed continue to believe monetary conditions are tighter than neutral, although the percentage figure was down slightly from 89 per cent in the June quarter to 88 per cent.
But the level of unemployment was expected to grow.
By March next year respondents believed it would be up to 4.1 per cent and by March 2010 up to 4.4 per cent.
Both were up 0.3 per cent on the previous survey and are significantly higher than the official unemployment rate of 3.6 per cent for the March 2008 quarter.
ASB economist Jane Turner said a pick-up in inflation expectations was to be expected on the back of rising oil and food prices.
But she believed the survey results would have limited implications for the next official cash rate decision due to be made by the Reserve Bank on September 11.
"It's likely the Reserve Bank were expecting a slight pick-up in inflation expectations in quarter three given the near-term cost pressures, but will be looking for inflation expectations to ease as headline inflation unwinds over the next year."
Turner said that while growth risks remained the focus of the Reserve Bank at the moment, it would also be keeping a close eye on inflation.
She said the survey was a timely reminder of the difficult balancing act the Reserve Bank must contend with.
"We believe the RBNZ will continue to take a cautious approach to reducing the OCR, cutting by 25 basis points at each meeting, finishing with an OCR of 6.75 per cent."