An influential survey conducted for the Reserve Bank (RBNZ) has perhaps surprisingly shown slight rises in the expectations of future inflation.
The rises are not of a magnitude likely to deflect the RBNZ from further Official Cash Rate reductions, but may nevertheless inject a note of caution into the central bank's considerations ahead of the final OCR decision of this year on November 27.
The RBNZ will still be widely expected to cut the OCR on the 27th by at least 50 basis points, having already reduced it from 5.5% to 4.75% since August.
The key result of the latest Survey of Expectations, carried out quarterly for the RBNZ, show the level of inflation in two years' time is expected by respondents (mean measure) to be 2.12%, which is up from 2.03% in the last quarter's survey. The two-year timeframe result is the one the RBNZ watches most closely.
The five-year-ahead expectation rose to 2.24% from 2.07%, while the 10-year ahead expectation increased to 2.19% from 2.03%.
The only timeframe surveyed that fell in this survey was the one-year, which dropped from 2.40% to 2.05%.
Expectations for one-year-ahead annual wage inflation decreased by 7 basis points from 2.88% to 2.81%. Two- year-ahead annual wage inflation expectations increased from 2.86% to 3.16%.
As said above, these results are perhaps somewhat surprising, especially given that this survey was conducted shortly after survey respondents would have been made aware of the news that actual annual inflation, as measured by the Consumers Price Index (CPI) had fallen to 2.2% as of the September quarter.
Remember, the RBNZ aims for inflation to be in a range of 1% to 3%, with an explicit target of 2%. The September quarter saw inflation drop into the 1%-3% range for the first time since mid-2021 after it had risen as high as 7.3% in mid-2022.
To that end there's nothing untoward in the latest survey results given that they show inflation expectations 'anchored' somewhere around that 2% mark.
But the rise in expectations in the latest survey after they had fallen so much in the previous survey - and after the actual inflation results showed inflation returning to close to 2% - might just indicate a little nervousness about the ability of the RBNZ to keep inflation in and around that 2% level.
The data for this quarter was obtained from 40 business leaders and professional forecasters by Research New Zealand – Rangahau Aotearoa on behalf of RBNZ. Field work for the survey was run between the 17th and 23rd October 2024. The number of respondents to the latest survey was higher than has been the case in more recent times, with only 33 respondents taking part in the previous quarter's survey.
4 Comments
With interest rates still high - and therefore showing in the HLPI but not the RBNZ's CPI - it is to be expected, IMO, that employers & market makers will see a necessity to raise wages. Or put another way, they'll see inflation driving wage increases until the HLPI comes down (i.e. the true cost of living comes down).
Influential survey. Crazy.
- 1-year inflation expectations have a weak ass correlation with inflation a year after (7% to 12% over last 40 years)
- 2-year inflation expectations have a negative correlation with inflation a couple of years later (-30%)
To put that in perspective, change in oil prices predict infation a few months later with a correlation of 65%.
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