RBNZ's latest survey of expectations shows an expected inflation rate of 2.03% in 12 months and 2.33% in two years

There's been something of an upward blip in the short term inflation expectations of New Zealand's business managers, but medium term inflation expectations remain fairly steady.

According to the Reserve Bank's latest Survey of Expectations for the March quarter, those responding expect on average inflation to be 2.03% in a year's time. That's up slightly from the 1.94% in the last survey.

However, the two-year expectations have dipped very slightly to 2.33% from 2.34% in the last survey.

The RBNZ is charged with keeping inflation in a range between 1% and 3%. More recently the central bank has started explicitly targeting a 2% level.

These latest results, following on from higher than expected recent official inflation figures, will likely have some reassuring impact on the RBNZ, although the central bank is still universally expected to raise the Official Cash Rate (OCR) by 25 basis points (to 2.75% from 2.5%) when it releases its next Monetary Policy Statement on March 13.

The RBNZ's survey of expectations is a nationwide quarterly survey of business managers and professionals conducted by the Nielsen Company on behalf of the RBNZ.

And in what may also be reasonably encouraging news for the RBNZ, its survey of household expectations, which is also quarterly and sourced from UMR Research’s nation-wide telephone omnibus survey, shows that householders' expectations of house price inflation and house price rises have little changed since the last survey.

Some 67.7% of those surveyed, up from 67.3%, expect house price rises over the next 12 months while the expectation of house price inflation 12 months out has remained on average the same at 5%.

Expectation of price rises dipped sharply in the previous survey from 70.9% after introduction of the RBNZ's 'speed limits' on high loan-to-value lending.

The RBNZ has said itself it expected house price inflation to peak at about 10% and then fall from there. Latest figures from both REINZ and QV indicate that prices have softened recently.

ASB economist Christina Leung said the inflation expectations result in the RBNZ's survey of expectations did not change ASB's interest rate outlook, "and we continue to expect the RBNZ will lift the OCR at the March MPS. The RBNZ sent a strong signal at the January OCR Review that it would look to raise the OCR in March given its growing confidence that economic growth was becoming self-sustaining."

She said fourth-quarter Consumer Price Index data, plus recent inflation indicators, showed that while inflation was contained for now there are signs underlying inflation pressures will lift over the coming year.

"In particular, construction cost inflation is broadening beyond Canterbury, and retailers look to be recouping some operating margin in the face of improving household demand.

"In this light, it is encouraging to see businesses are largely expecting inflation to remain reasonably contained," she said.

"The RBNZ will be focused on the extent to which inflation pressures lift as economic growth gains further momentum over the coming years. We expect annual inflation will reach the 2% mid-point of the RBNZ’s inflation target by the end of this year and peak at 2.7% in June 2015.

"We continue to expect the RBNZ will tighten gradually over the coming years, with the OCR expected to reach 3.25% by the end of this year and a peak of 4% by the end of 2015."