Households still see inflation increasing in future years

Personal Finance / analysis

The latest quarterly Household Expectations Survey for the Reserve Bank finds that households reckon the inflation rate will be 4.9% in a year and they don't see it being within the 1% to 3% target range over the next five years

18th Feb 25, 3:43pm by David Hargreaves

Source: 123rf.com

A survey of households conducted for the Reserve Bank (RBNZ) shows that people think the outlook for inflation's actually getting worse.

Annual inflation as measured by the Consumers Price Index (CPI) was 2.2% as at the December 2024 quarter. That puts it comfortably within the targeted 1% to 3% range.

But the households of New Zealand are having trouble 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 4.9% in a year's time.

Now that expectation has actually risen from the last survey, when the figure was 4.1%. In addition, the households' expectation of inflation in two years' time has risen from 3.7% to 3.9% and the five-year from 3.4% to 3.6%. (All are mean figures.)

This means that Kiwi households - and there were over 1,000 survey respondents - don't see the RBNZ keeping inflation under 3% at all for the next five years - despite inflation currently being just 2.2%. Details of the survey and its methodology are shown at bottom of article.

It's well worth pointing out that households' perception of the current level of inflation is a whopping 7.7% versus the official 2.2%.

Therefore it's an interesting question as to how concerned the RBNZ will be about these results as it prepares for Wednesday's Official Cash Rate decision, which is widely expected to see the OCR cut by 50 basis points to 3.75%.

The survey of the 'experts', last week's Survey of Expectations featuring the views of 42 business leaders and professional forecasters, showed inflation expectations neatly 'anchored' around 2% all the way out for 10 years.

As I say above, its difficult to see whether the RBNZ will be unduly perturbed by survey results that show a marked departure from current reported official figures.

However, surely there must be at least some concern that the households of New Zealand see the inflation picture in future as being WORSE now than they did three months ago.

Ultimately these surveys are not about whether the participants get what the outcome of inflation will be 'correct', but what they THINK. It's all about inflation expectations. If people expect inflation then it will likely become a self fulfilling prophesy.

It's also notable that households are anticipating 5.2% growth in their wages in a year's time, albeit that this is down from 5.6% in the previous survey. Average private sector pay had an actual increase of just 4.0% in the year to December.

At the very least these survey results may inject some more caution into the RBNZ's outlook as it decides what future interest rate cuts there may be.

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 January 22 and January 31 2025. The sample size for this quarter’s survey was 1,002 . The survey is conducted online and is made up of a nationally representative sample of New Zealand residents aged 18 and over.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

43 Comments

by huttman | 18th Feb 25, 3:50pm 1739847033

I find it hard to believe actually, though I do feel the inflation bite hard at the moment.

by IT GUY | 18th Feb 25, 3:53pm 1739847196

Ouch he still cuts though

by BadRobot | 18th Feb 25, 4:02pm 1739847745

It's easy to believe if you try.....

by M0ralHazard | 18th Feb 25, 8:17pm 1739863032

I wonder if you would get better results comparing the inflation expectations vs the Living Cost Index instead of the CPI (as that is what most people would think of as "inflation")

by ChrisOfNoFame | 18th Feb 25, 5:23pm 1739852600

This is probably more a reflection of the downbeat mood across the country.

Or put another way - people can't see the current situation getting any better, and grasping for an economic reason why it won't, inflation becomes an easy answer.

by OldSkoolEconomics | 18th Feb 25, 7:09pm 1739858985

A LOT of peeps have just experienced an interest rates rise... (mortgage payments up) and are realising the amalgamation of all last years price increases on their costs. Let alone the reduction in income and profits from businesses and investments. And a wobbly salary.

This on top of a decline in the value of their home and investments.

Things 'feel' like they are getting more and more expensive. Making ends meet is just becoming harder without light at the end of the tunnel.

We just put on hold a few projects that we would have given to various tradies (who I know are already short of work) whilst we see what's coming up for the economy.

Coffee shops are much emptier and discretionary spend is way down. With no real reason for change.

by ChrisOfNoFame | 18th Feb 25, 6:56pm 1739858163

"Lol.. the catch 22 of our predicament."

A very strange way to look at the past few years ... The way I look at it is simple.

The RBNZ has held interests rates far too high, for far too long, and in the process has been sucking huge amounts of spending money from the economy, much of it going to overseas interests and/or people who don't need it, nor will spend it.

But to you (and far too many others) it's about rising house prices? Sheesh - no wonder NZ Inc sucks a lemon !!!

by OldSkoolEconomics | 18th Feb 25, 7:19pm 1739859546

Sorry edited that whilst u were typing .

But the stupid low interest rate period did cause an asset bubble (particularly in residential housing) that did suck a lot of energy and money away from productive business. And now house prices are falling... we have nothing much else to fill the gap it leaves in the total discretionary spend. And for many people who built businesses around housing.. they are stuck.

Boosting house price has created a heap of imbalances in the economy that affect other things.. like retaining and attracting skilled young talent that we desparately need.

Interest rates needed to rise to tame inflation.. it's cyclical. And normal. Most of us that have been around a while expected it sooner and lost out a bit.. but in playing the investment game based on the cycles I minimise my risk and don't really mind the busts and high interest rates as I had prepared (as usual) and now and filling my time surfing and foiling til the inevitable pick up.

But.. yes housing was the big issue.. stupidly creating a huge boom at the expense of the rest of the economy was nuts

by JimboJones | 18th Feb 25, 4:05pm 1739847921

What a pointless survey...

In other news, a survey of 1000 Donald Trump supporters has discovered that the earth is flat.

by Zachary Smith | 18th Feb 25, 4:03pm 1739847816

People should probably be a little reticent when it comes to declaring what they "think". I mean, imagine if people communicated that they thought the government will become more authoritarian. The government may think that is excellent.

When asked these questions follow Socrates's lead and say, "All I know is that I know nothing"

by IT GUY | 18th Feb 25, 4:06pm 1739847991

Has this survey just become unreliable?

by BadRobot | 18th Feb 25, 4:15pm 1739848517

...or just inconvenient.

by BadRobot | 18th Feb 25, 4:14pm 1739848492

Then perhaps you shouldn't say what you think. My insurance has increased again this year, Christchurch rates are projected to increase almost 9%

https://www.odt.co.nz/star-news/star-christchurch/christchurch-city-cou…

and butter seems to have increased around $2.00 per 500 grams. Not difficult to see how people can believe inflation is not under control and could potentially increase above 3 or 4 percent. Some WANT a lower inflation rate projection because they are hoping for a lower OCR and then lower interest rates. If people make poor financial decisions they have to live with that decision.

by ChrisOfNoFame | 18th Feb 25, 5:29pm 1739852972

"... and butter seems to have increased around $2.00 per 500 grams."

Yeah.

That's what happens when the RBNZ engineers a protracted (and uneccessary) recession - that they fueled - and our NZ $$$ tanks.

Welcome to Mismanagement 101 ... And - fuck me - the culprits keep their jobs and no one dares question their compentency !!!

by OldSkoolEconomics | 18th Feb 25, 6:58pm 1739858291

The mistake was engineering a huge recession too late in the cycle... having encouraged a huge asset (residential housing bubble) to grow too big for too long - and which drew a substantial part of our economy and savings into it.

They should never have encouraged the bubble in the first place. We would have had a much smaller boom and smaller bust. And been happier with betyer productivity and and stability.

Muppets

by RookieInvestor | 18th Feb 25, 4:06pm 1739848006

You're asking people how much they spent last year compared to today. i bet most people don't know how much they spend on groceries last week.

by Pragmatist | 18th Feb 25, 7:26pm 1739859976

No, but they do notice some prices changing. I wouldn't have a clue what the last household shop cost, nor prices of most of the items in it. But I did notice the the lunchbar near work has increased their chicken wraps from $7.20 last week to $8 today, and the pies have gone from $6 to $6.50. Pretty sure they weren't charging $2 for a hard boiled egg before Xmas either.

by kraken | 18th Feb 25, 8:23pm 1739863398

Rump steak is $20-26 a kilo, butter $7-9 500g, eggs 66-100 cents each.

In 2019 Rump steak $10-12 a kilo, butter $4-5 500g, eggs 30-40 cents each.

I wouldn't mind if the prices doubled from here if it meant house prices went down another 30%

by sgtshortcut | 18th Feb 25, 8:36pm 1739864171

Only fella I know cheering on inflation Kraker…sticking to your guns with the scorched earth approach ✊

by kraken | 18th Feb 25, 8:45pm 1739864735

Cheers, 🔥🌏

by Hastings | 18th Feb 25, 4:15pm 1739848539

If they cut 50bp tomorrow, and these expectations are confirmed…then they have to increase again. What a circus. Maybe if they were wise they’d choose to drop 25bp and watch.

by RookieInvestor | 18th Feb 25, 4:26pm 1739849167

The maximum forecast neutral OCR is 3.5%, I think that's when they will wait and watch.

by ChrisOfNoFame | 18th Feb 25, 5:31pm 1739853082

Then they'd be idiots !!!

Which, of course, should come as news to no one.

by ChrisOfNoFame | 18th Feb 25, 5:34pm 1739853247

"If they cut 50bp tomorrow, and these expectations are confirmed…then they have to increase again."

Why do you say the RBNZ will have to increase again?

Surely not on the basis of an economic survey done amongst people who know jack shit about macro-economics?

by GV 27 | 19th Feb 25, 7:23am 1739903002

The problem is the things that are inflating aren't the discretionary items, they're not the bits people trade off against better rates on savings. Wallet are already shut, the inflation is captured in the bit people need to pay to get by. There's no trade-off to be made for a lot of these things, and inflicting more and more pain on mortgage holders to justify it no longer stacks up.

We now have too many entrenched monopolies who increase prices no matter the prevailing conditions and a populace who are for the most part, just paying what they have to do to get by. The economist's illusion of choice is no more. The price rises in things like insurance, food etc are not the fault of the consumers, and they will happen no matter what the interest rate is set at.

by WestieAJ | 18th Feb 25, 4:27pm 1739849238

In January 2021 the "experts" thought this.

Inflation expectations rose in the Reserve Bank's (RBNZ) January 2021 Survey of Expectations (Business), with both 1-year and 2-year inflation expectations rising, the latter to 1.9%, close to the mid-point of the Bank's 1-3% target band.

What chance does the man or women in the street (household) have of predicting inflation?

They may as well get Adrian some Rune Stones.

by Independent_Observer | 18th Feb 25, 4:48pm 1739850493

I personally wouldn’t be cutting the OCR given globally what is happening - I’d take a wait and watch approach. People will say ‘but the economy is getting so bad’…well yes it will get even worse if inflation starts ripping again and we are back to rate rises later this year or 2026 because we cut too deeply now. We need to stop this flip flop approach from cutting rates too low and then too high. Moderation is needed (in my opinion).

That in mind I think they’ll more than likely cut anyway. But I won’t say ‘see I told you so’ if mortgage rates are going up again in 12 months time. (who knows what crazy things could happen between now and then).

by RookieInvestor | 18th Feb 25, 4:56pm 1739850992

Shouldn't it be based of the current economic conditions rather than what if? people keep talking about inflation kicking up again (which i can understand why) but we have no real evidence that's happening.

by Independent_Observer | 18th Feb 25, 6:11pm 1739855518

We never had measured deflation and yet we went through emergency interest rates cuts in 2020 that caused massive inflation and popped your precious housing bubble.

So if the RBNZ just made decisions based upon current economic conditions (as you say they should), well inflation is within its mandated band and unemployment isn’t particularly bad so therefore holding is actually quite justifiable right now. It’s the anticipation that things are going to get worse is why they will cut.

Central banks are far more afraid of deflation than inflation because deflation causes debt bubbles to burst in very quick fashion - hence why they do everything to avoid deflation but are happy to look through high inflation outside their mandates band - even though it degrades everyone’s living standards (if you look at real GDP per cap we are living a far worse lifestyle now compared to before COVID because of the monetary policy mistakes we’ve made - and we are potentially going to make another if we drop the OCR too low once more - in my opinion).

by sgtshortcut | 18th Feb 25, 6:53pm 1739858011

@I_O Wouldn’t the current run of GDP numbers also need to be considered as part of their role in maintaining financial stability…their words “enable a productive and sustainable economy”…therefore they do have some responsibility to try & stimulate the economy?

by RookieInvestor | 18th Feb 25, 7:39pm 1739860769

appreciate the thoughtful response.

im under the impression that the 1st mandate for the RBNZ is bring inflation to 1-3%, 2nd mandate unemployment and GDP? if inflation is in its target range then the RBNZ are allowed to target reducing unemployment and increase economic activity by lower the OCR?

am i wrong to think this?

by kraken | 18th Feb 25, 9:56pm 1739868960

That's correct but I think, there is concern we get a repeat of the 1970s and a second wave of inflation like in 1976. Then central banks hike even higher.

by ChrisOfNoFame | 18th Feb 25, 5:41pm 1739853708

"... well yes it will get even worse if inflation starts ripping again ..."

If ... ? If ... ? If ... ?

Facts, I_O !!! Some facts, please.

Where do you see the forces are such that "inflation starts ripping again"???

No facts? You're as bad as the rest of them ...

by Independent_Observer | 18th Feb 25, 6:08pm 1739855303

Chrisofnoshame might be a better username.

But glad to know what you think of me - it’s much appreciated. Have a nice night.

by ChrisOfNoFame | 18th Feb 25, 6:58pm 1739858287

Sure. Now caught spounting nonsense - you run away.

by Mystery | 18th Feb 25, 10:10pm 1739869847

"Where do you see the forces are such that "inflation starts ripping again"???"

Perhaps the possibility of a trade war, thanks to Trump, could be one of those forces? it could affect tradable inflation to the upside.

by kraken | 18th Feb 25, 10:52pm 1739872358

Aging demographics are inflationary

by ChrisOfNoFame | 19th Feb 25, 9:10am 1739909447

Perhaps? Could?

These words indicate conjecture - also known as crystal ball gazing.

Next we'll have people saying ... "God says ...." with others nodding along in agreement. Where does such foolishness stop?

Sorry. Facts first and foremost.

Reckons and feelies must never go into the decision making mix.

by kraken | 18th Feb 25, 9:53pm 1739868787

flip flop approach from cutting rates too low and then too high

It’s how central banks or boa constrictors squeeze their prey.

by d_vision | 18th Feb 25, 5:34pm 1739853290

Perhaps people are beginning to realize how out of touch with actual non-discretionary spending, the official inflation numbers are.

Essential things are increasing at higher rates: rates, power, insurance's, fresh veges and good meat(not filler or fat) vehicle repairs(on their older cars) water, rent( currently in-limbo, but reasonable to assume once the supply/demand returns to typical levels; it will return to inflation) and alcohol(if you're miserable this is a crutch that supports many)

Those discretionary spend items, if you're lucky enough to afford them like: travel, holiday accom. New TVs or computers, clothing, new furniture, jewelry etc. are irrelevant to the many struggling and buying 2nd hand.

One of the highest weightings in stats nz inflation number is given to: Housing mortage cost.

So I gather, if the reserve bank lowers the cash rate(lowering mortgage rates) it automatically pushes the inflation number down in the next quarter -what a scam.

Well done survey participants; for calling it as it really is.

by Pragmatist | 18th Feb 25, 9:28pm 1739867318

No, mortgage cost is not included in the CPI at all, so no such feedback loop exists.

Mortgage costs are in the HLPI, but that is not the inflation number that the RBNZ is mandated to control.

by Let me be Frank | 18th Feb 25, 7:22pm 1739859736

One has to ask why they would bother with the waste of time such a (part of) survey as this is?

by MikeM | 19th Feb 25, 9:40am 1739911201

4.9%?! Do the surveyors realize that the people they're asking are pulling these numbers from a dark location in their anatomy?