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Home / Business

NZ firms lift 2-year inflation expectations

By Rebecca Howard
BusinessDesk·
14 Feb, 2018 03:00 AM2 mins to read

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Acting Reserve Bank governor Grant Spencer. Photo / File

Acting Reserve Bank governor Grant Spencer. Photo / File

New Zealand firms lifted their two-year inflation expectations and growth forecasts, pushing up the kiwi dollar by pointing to inflationary pressures emerging after a long hiatus.

The Reserve Bank's latest survey of expectations showed respondents see annual inflation at 1.86 per cent in one year versus the 1.87 per cent rate in the prior survey three months ago. Two-year expectations are seen at 2.11 per cent up from 2.02 per cent. The New Zealand dollar rose to 73.07 US cents from 72.72 US cents just prior to the release.

The central bank is mandated with keeping annual consumer price inflation between 1 per cent and 3 per cent over the medium term, with a focus on the midpoint. Annual inflation was running at 1.6 per cent in the fourth quarter.

Acting Reserve Bank governor Grant Spencer kept the official cash rate at 1.75 per cent in the February review and continued to signal rates won't lift until the latter half of next year at the earliest due to the lack of inflationary pressure. The central bank, however, keeps a close watch on inflation expectations as they have an impact on wage and price setting behaviour.

While fourth-quarter jobs continued to show an influx of workers was keeping a lid on wage inflation - with the unemployment rate at 4.5 per cent - today's survey pointed to growing expectations for higher wages.

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Annual hourly wage growth for one year ahead is seen at 2.48 per cent versus 2.25 per cent in the prior survey and increases to 2.68 per cent in two years from 2.57 per cent. The jobless rate is seen at 4.55 per cent in one year, down from a prior view of 4.66 per cent.

Firms lifted their expectations for economic growth on an annual real gross domestic product basis to 2.75 per cent for the year ahead from 2.65 per cent and to 2.52 per cent from 2.45 per cent for two years ahead.

The New Zealand dollar is expected to be at 72 US cents by the end of June, up from 70 in the prior survey. However, it is expected to fall to 70 by December this year.

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