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Survey shows inflation expectations falling – good news for RBNZ

Inflation expectations falling back across the board will be welcome news for the Reserve Bank.

Wednesday, February 14th 2024, 11:00AM

The RBNZ’s January quarter Expectations Survey shows business leaders’ and professional forecasters’ inflation expectations are continuing to drop and move closer to the RBNZ 2% target.

On average, the 38 people surveyed see the annual inflation rate falling to 3.22% from 4.7% by this time next year and 2.5% by early 2026.

Westpac senior economist Satish Ranchhod says it should reinforce the case for an ‘on-hold’ decision at the RBNZ’s policy meeting this month.

A closer look at the survey shows expectations for inflation two years ahead dropped by 2.5%, down from 2.76% last quarter. These are the lowest readings since 2021 and follow the decrease in actual inflation over the past few months.

Expectations for inflation at longer horizons are dropping back, and while they remain above 2%, they’re moving in the direction the RBNZ wants, Ranchhod says.

“Reinforcing the picture of easing inflation pressures, expectations for wage growth over the coming years have also dropped back sharply.” 

The RBNZ has been concerned domestic inflation pressures remain “sticky” and expectations are a key part of that story. “If businesses expect inflation to remain high, they are more likely to try and push through larger increases in prices. That will also affect wage setting, he says.”

There is still a lot of water to go under the bridge – headline inflation remains elevated at 4.7% in the year to December and domestic inflation is running hot.

Also, expectations are still higher than the RBNZ would like them to be, Ranchhod says.

However, conditions are moving in the right direction. Inflation and inflation expectations are dropping back, and both economic activity and the labour market are cooling.

“Those conditions mean that, while the RBNZ won’t be easing their foot off the brake just yet, they are likely to feel comfortable that policy settings are tight enough to get inflation back to target.”

Westpac continues to expect that the RBNZ will leave the OCR on hold this year, and is not forecasting cuts until early 2025.

In other expectations, survey respondents see the unemployment rate rising to 4.64% in a year’s time and 4.69% in two years’ time.

And respondents see house prices rising by an average of 4.82% this year, before picking up to 5.78% next year.

Tags: RBNZ

« RBNZ cries wolf – KiwibankASB's mortgage book shrank $518m from June »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.75 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.75 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 8 April 2024 9:21am

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