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.
43 Comments
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.
"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 !!!
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
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"
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.
"... 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 !!!
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
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.
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.
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.
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).
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).
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?
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.
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.
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