By BRIAN FALLOW
WELLINGTON - Business confidence is up in the National Bank's March survey, with optimists outnumbering pessimists three to one about the general climate in the year ahead.
Respondents' expectations of their profitability are up, and so are hiring intentions, especially among retailers and service firms.
Expected exports and investment intentions have slipped but remain at healthy levels, says the bank's chief economist, Brendan O'Donovan.
Pricing pressures, however, continue to mount. About 30 per cent of respondents expect to raise their prices over the next three months, a level surpassing the previous peak in 1994.
Even so, Mr O'Donovan argues that there are reasons to think inflation pressures will be weaker than in the last cycle.
The information revolution is dramatically changing the relationship between growth and inflation, he says.
Business-to-business e-commerce will slash business costs, while the internet increasingly empowers consumers, allowing them to gather information and compare prices regardless of whether they finally make the purchase over the net.
"The power is in the hands of the consumer and the ability of businesses to raise prices is being reduced."
In addition to such underlying changes, there are reasons the Reserve Bank should not be spooked by the strong growth of late last year, says Mr O'Donovan.
A lot of that growth was due to good growing conditions on the land, a one-off factor the bank should not respond to.
World inflation is weak and so far there has been minimal flow-through from the weak exchange rate to consumer prices.
Consumers are constrained by historically high household debt levels, which gives interest rates more bite.
Inflation is on the rise, Mr O'Donovan concludes, but not to an extent that requires the Reserve Bank to be belligerent.
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