ANZ's latest Business Outlook Survey is showing increased confidence and expected activity levels - and lower inflationary pressures.
ANZ chief economist Sharon Zollner said the May survey had "brought a bounce in a number of activity indicators".
"On the other hand, employment intentions eased. This may not all be due to smaller desired staff numbers; it may partly reflect that some long-running vacancies have now been filled as labour supply has increased.
"Most inflation indicators eased. Inflation expectations inched a little lower, and the proportion of firms expecting to raise their prices and wages also fell. However, the proportion of firms expecting costs to increase in the next three months remained stubbornly high," she said.
Zollner said the Reserve Bank (RBNZ) perceives "widespread sogginess" across the economy, "making them more relaxed about the extra stimulus being provided by super-strong net migration and more fiscal spending this year than anticipated".
"We aren’t so sure. Things are patchy, certainly, but most activity indicators are well off their lows and rising, while cost and price indicators are inching lower, rather than plunging.
"Even the most interest-rate-sensitive sector, construction, is much less downbeat than previously.
"We continue to expect that the RBNZ will be back at the [interest rate] hiking table by the end of the year."
The RBNZ last week raised the Official Cash Rate (OCR) to 5.5% and signalled that it was done with hiking at least for now. The RBNZ has hiked the OCR by 525 points since October 2021 as it battles to get inflation back into the targeted 1% to 3% range. Annual inflation as measured by the Consumers Price Index (CPI) was 6.7% as of the March quarter.
ANZ's economists believe that the RBNZ will be forced to start hiking again - and have pencilled in a 25 point hike in November into their forecasts.
Zollner said, regarding the survey, that wage growth is a key concern of the RBNZ currently.
"The proportion of firms reporting raising wages in the past 12 months remains high at 83%, similar to the proportion expecting to raise wages in the next 12 months.
"Overall, it’s a push to say there’s any downward trend evident in past wage settlements yet, with every sector except services lifting this month."
She said there is a downward trend in expected wages, however, with the economy-wide measure inching down.
"Firms are anticipating raising wages by considerably less in the next 12 months than they did in the last year."
In terms of firms' expectations of where their own selling prices will be in three months’ time, this eased or was flat for every sector except agriculture. It fell most sharply for construction.
"The economy-wide measure continued lower, which is going the right way for the RBNZ.
"We also survey firms’ expected costs in three months’ time relative to today. A general downtrend is clear here too.
"Expected profitability remains under pressure, with every sector in the red."
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