The Reserve Bank didn't need this one.
And perhaps we all didn't.
An online Reserve Bank (RBNZ) survey of about a thousand Kiwi householders has shown a surprising, and strong, rise in the expectations for the future levels of inflation.
And, also, the latest survey shows a marked uptick in households being more worried about making mortgage or rent payments.
The latest quarterly Household Expectations Survey shows that the mean expectation for inflation in a year's time is at 5.1%, down from 5.5% in the last quarter. So far so good.
However, the next bit goes wrong. The mean of households' expectations for inflation in two years' time rose to 3.6% from 3.2%, while in terms of five years out the median expectation actually shot up to 3.6% from just 2.1% in the previous survey.
Remember, this is at a time when actual inflation as measured by the Consumers Price Index is starting to come down significantly, albeit from very high (7.3% peak) levels. As at the December quarter actual annual inflation was running at 4.7%, down from 5.6% in the previous quarter.
The full details of the survey as highlighted by the RBNZ are available here.
The data for this report was collected by Research NZ on behalf of RBNZ. Fieldwork for this survey was conducted between January 24 and February 2, 2024 - after the December quarter inflation results had been released.
What the RBNZ will make of these results is anybody's guess - but the results are sure to provoke some discussion ahead of the RBNZ's Official Cash Rate review on Wednesday, February 28.
The results, particularly relating to inflation, may quite possibly disappoint the RBNZ, which is looking for 'inflation expectations' to decline so that inflationary behaviour does not become ingrained - leading to ingrained inflation itself.
The sister survey for the RBNZ released last week, the Survey of Expectations, which canvasses the views of a small number of business leaders and professional forecasters, had strongly positive results for the RBNZ, showing falls in the expectations of future inflation levels across the board.
The RBNZ might have hoped to see the same with the latest household survey. How much account will the RBNZ take of the latest household survey results in its deliberations over whether to increase the OCR again from the 5.5% level it has been on since May of last year?
The significant thing about this household 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 last year. And the RBNZ has been putting much more emphasis on this survey recently.
The latest survey results also showed some signs of renewed mortgage stress.
Survey respondents are asked on a scale of 0 (i.e. not at all likely) to 100 (i.e. extremely likely) the chance they will miss a mortgage or rent payment in the next three months.
This question was first asked in the March 2022 quarter and is asked of a sub-set of the total sample.
This quarter, the average chance of not being able to make a mortgage payment in the next three months is 17.3%, a 4.9 percentage point increase from 12.4% reported in the previous quarter. It is the highest percentage since the June 2022 quarter and follows two consecutive surveys when the figure had gone down.
The average reported chance of missing a rent payment in the next three months was 18.0%, an increase from last quarter’s 16.2%.
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.
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.
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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.
LOL
This is not "Tara-ā-Whare." The data is collected online. It's an online survey.
You do understand that all living languages evolve over time, right? That existing words are combined in various ways to form new meanings as society changes? You understand that Maori is a living language and therefore it's perfectly expected for existing words to be combined and used in new ways with new meanings?
Here's the etymology of the word "survey":
The meaning "act of viewing in detail" is from 1540s. The different-tending sense of "act of looking at something from a general view, comprehensive prospect" is attested by 1560s, originally figurative. The "operation of finding and recording the particulars of some part of the earth's surface" is by 1610s. The meaning "poll, systematic collection of data on opinions, etc." is attested from 1927.
For hundreds of years survey was about examining and inspecting physical objects or situations, not opinions, yet you have no problem with using the english word in that modern sense now.
Maybe out here in the world we keep seeing huge price increases, with no real reason other than 'they can do it'.
With no sign in recent decades that governments of any hue have an interest in combating our duopolies and cartels, why would we think that inflation won't continue.
In the US, of all the industries in the services and the manufacturing sectors –from hairdressers to pharmacies to steel makers to internet service providers and semi-conductor companies and so on – on average, the top four players in each industry control approximately one-third of their respective total market. In contrast, in Japan the leading four companies command less than 15%.
Clear speak: Japan is much more fragmented and more cut-throat competitive, while America`s industrial structure has been consolidated and has de-facto become more oligopolistic or oligopsonistic.
The net result is significantly lower price power for suppliers of goods and services in Japan relative to the US. No matter how differentiated a product or service you offer in Japan, within days or weeks, a competitor will follow suit offering something similar but at a lower price point.
https://japanoptimist.substack.com/p/whos-afraid-of-inflation-not-japan
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.
Hmmm. I don't like these blanket assumptions about inflation expectations, but I guess this holds.
What I'm more convinced about is that if people expect prices to be lower in the future, they will be more likely to delay their purchase or consumption. And that arguably fuels deflation.
Of course peoples inflation expectations go up when you're seeing recent substantial increases in water bills (upwards of 25%) and insurance premiums of 10%-20%, rent and mortgage increases and food inflation that is far over and above the normal. If anything increasing the OCR only increases these more.
Not raising it keeps the economy just moving enough for key staff to ask for raises to cover increased bills... and thus supply chain costs rise and the retail prices rise...
RBNZ have to act quickly and agressively and change thinking or this will really drag out.. HFL
Average people making predictions about their own ability to pay their rent or mortgage in the coming months I would believe. Average people making predictions about inflation rates two years out is about as useful as asking them to predict the weather on Feb 22nd 2026.
I don't think the RBNZ understand the magnitude of some of the increases or the actual proportion of spending they represent for most households.
Looking at my household, the below four things make up about 40% of our overall annual spend.
- Rates: 18%
- Power: 28%
- Insurance: ~30% average across all policies
- Groceries: ~11% on what we buy regularly.
All up works out to be about $5k a year increase at an average inflation of 16%, and I expect all four will be double digits again next year, and the year after, and the year after....
Agreed. But look at those and wonder how price-setting is done ...
- Rates = prices set by a monopoly
- Power = prices set by an oligopoly
- Insurance = prices set by an oligopoly
- Groceries = prices set by an oligopoly
In our cosy banking, insurance, power and grocery oligopolies price setting is done by a quick glance at what 'the other guy' is doing and setting the prices accordingly.
Case in point? One of the electricity companies recently announced it isn't making enough profit. They announce in their share market presentation they'll be increasing prices to return profits to their normal upwards trajectory. The other power companies will all follow suite.
This price fixing has been going on for 20-30 years. (Yup, neo-liberalism - again.)
About the only way I can see true competition being returned to the NZ's markets is for Government to set up one not-for-profit business in each sector to facilitate real competition. (Many other countries - including the home of capitalism: the USA - do this, usually at the state level but also at the federal level. And Europe is awash with them.)
Its entreched its how inflation works.
Businesses now expect suppliers and staff to ask for raises to match inflation, so they do and they get them.. and their business raise their prices accordingly. Gst adds on the end and is bigger as a result...... people see these higher prices and have to ask for raises... and we all expect the same next month.
Gotta crush it or its gonna turn nasty
The RBNZ is just copying FED and won’t drop rates until given OK to do so. If they do drop rates before NZD will just tumble put more inflation into the system. By lowering rates to emergency levels just pushed up house price’s to silly levels now anyone who has debt or mortgage will be paying more for years while the house prices tumble leaving many holding huge financial burden. I noticed today in Auckland over 14k of properties for sale on trademe gone up 2000 in last month must be many are trying to get out before price’s start next phase of house price crash.
Come on Adrian
do it, do it
This country needs a bigger ocr, reward savings and investment and drop the price of houses. My son Nicky living with his gf and baby in her parents basement, cos they can’t afford a house.
All that money sloshing around houses can then go into getting the grain pier dredged and redeveloping the waterfront. Jobs and living for generations.
no one knows what inflation is going to be in 1 year let alone 5 years time.
The theory begs to differ. According to the theory Interest rates control inflation, and if something is controlled then it is very easy to forecast.
The problem is the theory is complete crap.
Some things are coming down but some big increases still coming through… rates water insurance.. money flows through the economy so yea. The problem is people are ridiculously leveraged so they feel so much pain at 7% interest rates. Asset bubbles just need to deflate. It’s just a cycle boom to bust. Alls good in booms but everyone try’s their darnest to avoid the bust by stretching things out. Problem is once inflation is entrenched it’s doubly hard to eradicate so it looks like we’re in that space. Inflation also hits the poorest hardest so it’s always in govt best interest to keep this well in control. No surprise we are seeing even more poverty despite the free money distribution min wage increase policies of labour. Give few bucks away but hey prices are increasing faster!
I would be surprised if interest rates didn’t increase next week.
Lol. Statistical soup.
For example, which measure of inflation. The CPI used by the RBNZ that excludes numerous costs associated with RBNZ created high interest rates? Or the far more realistic Household Survey done by Stats NZ that includes all relevant costs?
Were the survey sample members even aware of the difference? Most likely they hear all about the RBNZ's CPI ad nauseum from MSM but experience the Household Survey done by Stats NZ every day and on every mortgage repayment.
And how many of the people sampled are actually price-setters? I suspect the majority will be price-takers. And how many actually had mortgages? And of those mortgages, how many were OO and how many were 'investors'?
re ... "The significant thing about this household 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 last year."
The report makes interesting reading. It concludes: The household inflation expectations survey of the RBNZ and 1year consensus forecasts are particularly noteworthy in their forecasting accuracy, offering significant forecasting value to the simple models.
But go back to the graph "b. Headline inflation and 1-year survey inflation expectations" on page 6. Sorry, I don't see the Household predictions (HH median and mean) as showing any predictive capability at all. Can you?
What do you expect when you get "road cone" politicians and bureaucraps engineer a recession? someone has to pay: normally business and households, in particular, the small business and low and middle income families. Meanwhile, the politicians and RBNZ morons continue to get bigger payrises for screwing the country.
Hmmm ... Lots of talk about 'sticky inflation'. But is there any evidence of this in NZ in recent times?
Look at this graph. Stretch the graph sliders out so you can see the graph all the way back to 1995.
https://www.interest.co.nz/charts/prices/consumer-prices-index2
Now look at each inflation spike. If NZ has a 'sticky inflation' problem then you'd expect to see a fast spike up followed by a slower spike down.
Are there any? No. They're all pretty much inverted 'V's. Same rate up, same rate down and back into range.
If you believe "this time is different" then I'd love to hear why you think that.
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