An online Reserve Bank (RBNZ) survey of about a thousand Kiwi householders has found they expect inflation will fall - and house prices will start rising again.
And households are no more worried about making mortgage payments, or keeping their jobs, than they have been.
The RBNZ's latest quarterly Household Expectations Survey found that respondents do expect inflation to fall considerably, particularly in terms of in two years' time.
Westpac senior economist Satish Ranchhod said this was an encouraging sign for the RBNZ.
"New Zealand has already experienced an extended period of high inflation. And although headline inflation has been falling, it remains elevated at 6% in the year to June.
"Against that backdrop, the risk was that inflation expectations would remain high, and that could make it harder for the RBNZ to get inflation back to target. However, with expectations dropping back, the RBNZ can feel more comfortable about the outlook for domestic inflation.
"We expect the RBNZ will highlight the fall in inflation expectations in tomorrow’s Monetary Policy Statement. This would help to counter concerns about the persistence strength in domestic inflation that was evident in the June quarter inflation figures," Ranchhod said.
In terms of the survey results, on average respondents expected inflation to be 6.0% in a year's time. That's a significant improvement on the previous quarter's result, in which survey respondents reckoned year-out inflation would be 7.4%.
In terms of the expectation for inflation for two years out, households are now expecting, on average, 3.3% inflation, down from 4.5% inflation in the last survey. However, it still would put inflation (if this result were to prove correct) outside the RBNZ's target range. But, regardless, things are moving in the right direction for the RBNZ in terms of public opinion.
The significant thing about this survey is that it has a good recent track record of picking the actual inflation outcome one-year out, according to analysis the RBNZ did on surveys earlier this year. And the RBNZ has been putting much more emphasis on this survey recently - even bringing forward the timing of this release by a day so as not to clash with the August 16 Monetary Policy Statement release.
The RBNZ Household Expectations Survey was re-developed in Q1 2022 and renamed to Tara-ā-Whare - Household Expectations Survey . The word “Tara” is derived from Pakitara, or the walls, and “Whare” means a house. Tara-ā-Whare is also used to describe going to door to door, to ask questions.
While expectations of inflation are tracking in a direction, at least, that will please the RBNZ, the expectation of wage rises might not. Respondents now expect a bigger wage rise over the next 12 months (6.4%) than they did three months ago (6.0%).
Key among the RBNZ's aims with its tightening of monetary policy and interest rate hikes has been to kill 'inflationary expectations'. That's because if people expect prices to be higher in the future, then they will want higher prices for things they sell now and they will want higher wages. This fuels actual inflation.
So, these latest results offer encouragement on inflation expectations, but the wage expectations might be a bit bothersome.
Survey respondents reckon they are going to get higher wages - and they reckon their houses are going to start going up in value again too.
They see house price inflation of 1.6% in one year's time up from just 0.6% in the last quarter's survey, while in five year's time they see cumulative house price rises of 8.1% up from just 6.2% a quarter ago - a movement the RBNZ described as "significant".
In terms of employment and paying the bills, the latest survey has found respondents give just a 13.4% chance of missing a mortgage payment - and that's surprisingly (I think) down from 15.8% in the previous survey.
The chance of respondents not making rent payments has gone up slightly (though hardly significantly) to 16.3% from 15.5%.
Surprisingly, also, respondents are now giving less chance of losing their jobs in the next 12 months than they did a quarter ago. This probability, respondents reckon, has fallen to 17.2% from 18.3%.
The RBNZ itself (as of May) was forecasting unemployment to rise to 4.6% at the end of this year. As of June actual unemployment was 3.6%.
And as far as survey respondents go, they still see their chances of getting another job being pretty good, even if they do lose the one they have. They put their chances of getting another job at 51.2%, very slightly down from 51.7% in the previous quarter's survey.
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