NZ inflation expectations grow, interest rates seen higher

NZ inflation expectations grow, interest rates seen higher: RBNZ survey

May 24 (BusinessDesk) – New Zealand business managers expect inflation will accelerate over the next two years and interest rates will rise over the coming 12 months, according to the Reserve Bank’s survey of expectations.

The consumer price index is expected to reach 3.12% in a year’s time, up from the 2.87% year-ahead rate expected last quarter. CPI would speed to 3% in two years time, up from a previous estimate of 2.64%.

Quarterly CPI of 0.87% is expected for the three months ending June 30, up from a 0.77% rate see in the last survey. They would translate into annual inflation of 4.4% and 5.1% respectively.

Monetary conditions are perceived as being easy currently, though a growing number of business managers expect conditions to get tighter over the next year. At the time the survey was conducted on May 11 and 12, the net percentage of those polled who saw easier-than-neutral conditions was a net 23%. By March 31, 2012, that shrinks to a net 1% seeing easier-than-neutral conditions.

“Inflation indicators up till now had suggested the RBNZ had plenty of breathing space on the inflation front, but today’s result suggest that space may be ebbing away given the vast amount of post-earthquake rebuilding activity that will be required,” ASB economist Christina Leung said. “Pricing intentions and cost expectations in business surveys over the coming months will be key in assessing whether businesses are already starting to factor the likely boost to inflation into their business decisions, and thus the effect on medium-term inflation pressures.”

One-year-ahead expectations for gross domestic product have eased to growth of 2.1% from the 2.5% pace seen last quarter. Over two years, the pace has sped to 2.8% from 2.6%.

The unemployment rate is expected to ease to 6.2% over the next year and to 5.7% over the next two years.

The 90-day bank bill rate is seen at 2.7% by the end of June, rising to 3.3% by March 2012. The yield on 10-year bonds is expected to be about 5.8% by the end of March next year.

Respondents are picking the kiwi dollar will strengthen against its Australian counterpart, gaining to 76 cents by the end of March next year, while falling to 76 U.S. cents over the same period. The kiwi recently traded at 79.6 U.S. cents and 75.46 Australian cents.

(BusinessDesk)

© Scoop Media