New Zealand one-year ahead inflation expectations are at a 32-year high of 4.88 per cent, the Reserve Bank said.
Commenting on its survey of expectations for May, the bank noted that the mean official cash rate (OCR) expectation for the end of the current quarter was 1.99 per cent, showing the majority of respondents expected to see a 50-basis-point rate hike from the current level of 1.5 per cent.
Mean one-year ahead OCR expectations rose by a similar magnitude to shorter-term forecasts, but had a much wider spread.
The mean estimate for the OCR one-year ahead was 2.97 per cent, up 86 basis points from the last quarter's survey.
"This would translate to approximately six 25-basis-point rate hikes over the Monetary Policy Committee's next seven scheduled meetings," the Reserve Bank said.
The bank said OCR expectations continue to rise, with a 50-basis-point increase expected this quarter.
But the bank said longer-term inflation expectations remain anchored close to or within the RBNZ target band range of 1–3 per cent.
One-year ahead unemployment expectations remained at an all-time low, the survey showed.
House prices were expected to fall over the next year but rise marginally over the next two.
The OCR was last raised by 50 basis points on April 13.
Latest Stats NZ data showed annual CPI inflation for the March 2022 quarter was measured at 6.9 per cent, the largest year-on-year increase since 1990.
Westpac noted the closely-watched two-year ahead survey measure held steady at 3.3 per cent.
"The fact that inflation expectations at this horizon did not push higher will have been some relief to the RBNZ," Westpac economists said in a commentary.
"Nevertheless, they're still left with inflation expectations that are well above the 2 per cent target (mid-point) over the medium term.
"At the same time, the level of longer-term inflation expectations will be raising red flags at the central bank," Westpac said.
Expectations for inflation in five years' time have risen for a third successive quarter, climbing to 2.4 per cent (from 2.3 per cent), while expectations for inflation in 10 years' time have remained at 2.1 per cent.
Westpac said expectations at these very long horizons were typically viewed as a reflection of whether market participants viewed the Reserve Bank's inflation target as credible.
"Consequently, the push higher at those horizons in recent surveys will certainly be a worry for the RBNZ," Westpac said.
While the headline two-year rate was more restrained than it could have been, the RBNZ's latest expectations survey still pointed to strong inflation pressures.
"That's a big worry for the central bank, as if this feeds into wage and price-setting behaviour, the strength in inflation could be sustained for longer, and larger rises in interest rates could be needed.
"On this front, we're already seeing mounting upwards pressure on wage demands and output prices."
Westpac said the survey result supported its own forecast of a series of rapid OCR increases over the coming months.
The bank expects the Reserve Bank to lift its OCR by 50 basis points, from the current 1.50 per cent, on May 25.