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NZ business managers trim view on inflation outlook

NZ business managers trim view on inflation outlook, see GDP speeding in next 12 months

Aug. 23 (BusinessDesk) – New Zealand business managers have wound back their expectations for inflation over the next two years while seeing a faster pace of growth over the next 12 months, according to the Reserve Bank’s Survey of Expectations.

The mean expectation for inflation one year out is 2.94%, down from the 3.12% estimate in last quarter’s survey. The two-year series fell to 2.86% from 3%.

Monetary conditions are now regarded as being easier than neutral by a net 18% of those surveyed. By December, a net 1.5% expect conditions to be tighter than neutral. That ties with market expectations that Governor Alan Bollard will raise the official cash rate, now at a record low 2.5%, as soon as the third quarter.

The 90-day bank bill rate is seen at 2.9% by the end of September, little changed from the current level of 2.92%. By June next year the rate is expected to climb to 3.6% and the 10-year bond yield is seen at 5.2% from 4.45% now.

The survey polled 67 business managers, of which 20 were in the finance sector, 30 in business, seven in agriculture and 5 in labour. They see gross domestic product growing 2.9% in the year ahead, up from a 2.1% rate in last quarter’s survey. The two-year ahead figure rose just 1 basis point to 2.9%.

Economists say the economy will get a kick start later this year when the rebuild of Christchurch gets underway in earnest and as visitor numbers jump with the Rugby World Cup.

The RBNZ survey suggests wage pressures are picking up even if overall inflation is seen easing. Hourly earnings are expected to rise 2.9% in the year ahead, up from 2.5% growth three months ago. The two-year series rose 1 basis point to 3.1%.

The kiwi dollar may be trading at 83 U.S. cents by the end of the year before easing back to 81 cents by the end of June 2012. It recently traded at 82.60 cents. It may buy 80 Australian cents by June next year from 79.15 cents now.


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