Actual inflation as measured by the Consumers Price Index (CPI) has dropped to 2.2% - but the households of New Zealand are having difficulty believing the inflation monster has been beaten.
According to the latest quarterly Household Expectations Survey for the Reserve Bank (RBNZ), kiwi households see inflation (mean measure) at 4.1% in a year's time.
That's unchanged from the previous quarter's survey - even though the latest actual inflation figures showed inflation dropping to 2.2% for the September quarter, from 3.3% as of June. It means that inflation is now back within the targeted 1% to 3% range for the first time since mid-2021.
Details of the survey and its methodology are shown at bottom of article.
These surveys have shown a bit of a history of households estimating inflation to be higher than the official figures tell us, so, perhaps these results are no surprise.
But the RBNZ would have wanted to see the expectations at least coming down in line with the way actual inflation has.
Perhaps more disconcertingly for the RBNZ is the fact that the mean two-year-ahead annual inflation expectation increased from 3.1% to 3.7% this quarter. So, households reckon the outlook for inflation has actually worsened in the past quarter and see it being well outside the 1%-3% target range in two years' time.
Interestingly, also, households expect 5.6% average growth in their earnings in one year’s time, unchanged from last quarter.
According to Statistics NZ's labour market figures for the September quarter, private sector average ordinary time hourly pay increased just 3.2% in the year to September. So, quite a disparity there.
The mean five-year-ahead annual inflation expectation of households remained unchanged at 3.4%.
These results in the household survey follow on from the recent RBNZ Survey of Expectations, featuring the views of business leaders and professional forecasters. It too showed an increase in the expectations of future inflation.
Why this is important for the RBNZ is that expectations of higher future inflation can become self-fulfilling. That's why one of the key battles in controlling actual inflation is to bring down inflation expectations.
As would be the case with the Survey of Expectations' results, the higher inflation expectations in the household survey aren't likely to alarm the RBNZ, given that the rises are not huge - but the results may well inject more caution into the central bank's thinking.
And that could have some influence on the speed at which the RBNZ cuts the Official Cash Rate - bearing in mind that it is widely expected to cut the OCR by at least another 50 basis points in the next review on November 27. The OCR currently stands at 4.75% having been reduced from 5.5% since August.
The household survey also asks about difficulty in meeting mortgage and rent payments and perceptions of how easily they would be able to find new jobs.
The latest results didn't appear to indicate any alarming changes in perceptions of being able to meet payments. But households are gradually getting less optimistic about chances of being able to get a new job if they need to try to find one.
The RBNZ say on average, households reported a 12.9% chance of not making a mortgage payment in the next 3 months (13.9% previous quarter). Households reported a 17.5% chance of not making a rent payment in the next 3 months (17.3% previous quarter).
Households continued to expect increased difficulty in finding a new job in the next three months. The expected chance of finding a new job has declined for three consecutive quarters since March 2024. On average, respondents believed there was a 42.3% chance they would find a new job in the next three months if they lost their job (43.8% previous quarter).
The mean one-year-ahead house price inflation expectation increased from 1.7% to 2.2% this quarter.
The RBNZ Household Expectations Survey was re-developed in 2022 Q1 and renamed to Tara-ā-Whare - Household Expectations Survey. The data for this report was collected by Research NZ on behalf of RBNZ.
Fieldwork for this survey was conducted between October 16 and 23, 2024. The sample size for this quarter’s survey was 1,002 and has a margin of error of +/-3.1% for a 95% confidence interval for a 50% figure. The survey is conducted online and is made up of a nationally representative sample of New Zealand residents aged 18 and over.
14 Comments
https://www.abc.net.au/news/2024-10-01/the-great-kiwi-rate-hike-experim… Australia have managed to get inflation down to 2.7% without firing everyone without austerity without cuts to everything under the sun including the cup of milo in the hospital breakroom. Yet our lot will say we had no choice but to go hard to tame inflation. Yeah right. What was the point of it all. Meanwhile you can see us inching towards even further privatisation - Seymour's moves to cut red tape in the ECE sector actually translate to reduce accountability of providers to the government and less transparency for parents over fees. We have a system that is the most expensive to government and the most expensive to parents in the OECD. When Key came in the market was mostly community-based. Over the years the pendulum has swung hard to the private sector with many corporates and 'NGOs' profiting handsomely - with worse results financially and educationally. Best Start is one of the worst of the worst a "not for profit" that spends 2 million on charity and 20 million per year paying back a loan to the wright family foundation (the foundation loaned 300 million to best start which essentially was a sale of the business). Because this 20 million is a loan repayment it's an expense not profit. How is this legal? Like it's so dodgy.
Thats because the inflation rate for non-tradeables is still 4.9%. Who cares if the new iphone has a better camera than the last one so counts as deflation for the purposes of the CPI? The official statistics don't represent a normal household's budget and spending.
"But the RBNZ would have wanted to see the expectations at least coming down in line with the way actual inflation has."
David, your speculations? I.e. a 'reckons'. Or perhaps you are putting words into the RBNZ's mouth?
Or has the RBNZ said the same?
The distinction is kind of critical - even to an opinion column ....
The RBNZ stands at a precipice and must be extremely careful where it moves. The economy is leveraged up and reacting severely to the tightening imposed so far - more so than the last tightening round (because the aggregate and extreme leverages are greater). Yet the price level still rises.
Indeed. It more than ever is facing choosing the conservative retired and low income majority, or, continuing to back the minority leveraged gambler expoloiting the remainder of society for their own greed. If the leveraged without supporting yield continue to pour accelerant over themselves that is their choice.
Let them catch fire...
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