New Zealand businesses have trimmed their expectations for consumer inflation over the next two years as the rosy outlook for a booming economy comes off the boil.

The consumers price index is seen rising an annual 1.59 per cent on a mean basis in the year ahead, down from the 1.96 per cent pace seen three months ago, according to the Reserve Bank of New Zealand's survey of expectations.

Two-year inflation expectations were lowered to 2.06 per cent from 2.23 per cent, and respondents anticipate a 0.26 per cent lift in CPI in the December quarter, followed by a 0.4 per cent rise in March.

"The Reserve Bank recently adjusted its interest rate guidance, suggesting that fewer OCR hikes will be necessary because inflation has turned out surprisingly tame," Westpac Banking Corp's New Zealand chief economist Dominick Stephens said in a note. "This fall in inflation expectations helps to vindicate the Reserve Bank's stance.


Indeed, the magnitude of this decline in expectations might even contribute towards a further downgrade in the RBNZ's interest rate forecasts."

The CPI rose at an annual pace of 1 per cent in the September quarter, below expectations, and only just within the Reserve Bank's target band of between 1 per cent and 3 per cent.

Strong inbound migration and a depreciation in the kiwi dollar during that period had been expected to put pressure on consumer prices, and the central bank has been surprised by the lack of inflation in the economy.

A net 27 per cent of surveyed firms see monetary conditions as being easier than neutral, with the official cash rate at 3.5 per cent, compared to 19 per cent in the prior quarter, and a net 27 per cent expect conditions will still be easy in March. By the end of September next year, a net 3 per cent anticipate conditions to be tighter than neutral.

Firms see the 90-day bank bill rate at 3.69 per cent by the end of December, rising to 3.85 per cent nine-months later, while 10-year government bond yields are expected to be 4.44 per cent by the end of September next year.

Today's survey showed firms cut their expectations for economic growth, with a one-year outlook on gross domestic product expansion of 2.7 per cent, compared to 3.1 per cent three months earlier. Two-year expectations slipped to 2.5 per cent from 2.7 per cent.

Unemployment is expected to fall to 5.3 per cent in the year ahead, and 5.2 per cent the following year, from the current rate of 5.34 per cent. That's not seen as translating into much higher wages, with one-year ahead hourly earnings growth expectations of 2.47 per cent, compared to 2.55 per cent three months earlier, and two-year ahead growth of 2.6 per cent, compared to a previous view of 2.75 per cent.

The survey was conducted on Nov. 12 and 13, and was of 76 business managers and professionals.