NZIER is reporting signs that inflationary pressures in the economy are beginning to ease.
The news coming out of the latest in the long-running and influential NZIER Quarterly Survey of Business Opinion (QSBO) suggests easing of capacity pressures in the New Zealand economy while, crucially, the crippling shortages of both skilled and unskilled labour in the country are easing also - albeit slowly.
This news will be a welcome boost for the Reserve Bank (RBNZ), which is attempting to drive down inflation that hit 7.3% as of the June quarter, and which is widely expected to raise the Official Cash rate on Wednesday (October 5) by another 50 basis points to 3.50%.
NZIER's principal economist Christina Leung said the latest survey findings suggest that businesses are still feeling downbeat in the September quarter, but they are also starting to see the light at the end of the tunnel.
"On a seasonally adjusted basis, a net 42% of businesses surveyed expect deterioration in general economic conditions over the coming months – a considerable decrease from the 62% in the June quarter."
Regarding demand in firms’ own business, a net 3% reported an increase in their own trading activity over the September quarter. Demand looks to be stabilising at a lower level, suggesting a period of weaker growth in the New Zealand economy ahead.
On those capacity pressures, Leung said a net 9% of businesses reported capacity as the primary constraint on their business – compared with 13% in the previous quarter.
Labour - or more to the point finding and retaining it - remains the top primary constraint for businesses, with the proportion reporting finding labour as their primary business constraint actually increasing from 37% in the last survey to 43%.
"However, shortages for both skilled and unskilled labour are easing from the historically high levels of the past year," Leung said.
"This suggests wage growth is likely to ease over the coming year, as the reopening of international borders allows more firms to employ workers from overseas."
In the June quarter the unemployment rate as reported by Stats NZ was just 3.3%, while hourly wages in the past year had increased by some 7%.
Leung said that the developments regarding easing labour and capacity pressures are flowing through to moderation in inflation pressures.
"In the September quarter, the proportions of businesses reporting higher costs and raising prices both fell," she said.
"Although the economic outlook is highly uncertain, these results support our view that annual CPI inflation will ease over the coming year."
ASB senior economist Mark Smith said the survey "provided something for both economic hawks and doves".
"There were generally improving signs, although the activity outlook for the second half of the year looks to be weak," he said.
"Experienced and expected prices may have peaked but pressures on profitability, surging costs and the extremely tight labour market highlights the risk of protracted above 3% rates of inflation.
"To counter this, a frontloaded pace of OCR hikes and restrictive monetary settings by the RBNZ is required, with the 50bp hike expected for tomorrow not the last in a sequence of rate hikes needed."
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.