Expectations for inflation over the coming years have picked up ahead of the RBNZ’s upcoming policy meeting.
RBNZ inflation expectations survey
- 1 year ahead: 2.59% (Prev, 2.39%, +20bps)
- 2 years ahead: 2.37% (Prev: 2.28%, +9bps)
- 5 years ahead: 2.31% (Prev: 2.22%, +9bps)
- 10 years ahead: 2.30% (Prev: 2.18%, +12bps)
Inflation expectations have pushed higher in the RBNZ’s latest survey of professional forecasters and selected businesspeople.
Expectations for inflation one year ahead rose to 2.59%, up from 2.39% at the end of last year. An increase in near-term expectations for inflation wasn’t surprising given that actual inflation has also been hotter than expected – headline inflation rose to 3.1% at the end of last year. While much of that was due to higher prices for volatile items like food and fuel, core inflation is also at firm levels.
Notably, however, it’s not just expectations for inflation over the next few months that have picked up. The closely watched measure of inflation in two years’ time rose to 2.37% (up from 2.28% previously).
Longer term expectations were also up 9 to 12bps.
Expectations for inflation over the coming years are still well contained within the RBNZ target band. However, they’ve been drifting higher over the past year and are noticeably above the 2% target midpoint.
While inflation expectations at these levels aren’t a game changer for the RBNZ, they add to a picture of a less-benign inflation environment than had been anticipated. In addition to hotter inflation and the uplift in inflation expectations, we’re seeing increasing signs that growth in the economy is picking up.
With lingering spare capacity and above average unemployment, the RBNZ won’t be rushing to hike interest rates as soon as next week’s interest rate meeting. However, the direction for rates is ‘up’ from here. We expect the OCR forecasts in next week’s RBNZ Monetary Policy Statement will signal an earlier start to the interest rate hiking cycle than the central bank previously assumed, including the chance of a December hike.
We’re forecasting a 25bp hike in December, with further hikes beyond that time. See our full preview of next week’s RBNZ policy meeting here.
