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NZ businesses lift inflation expectations

NZ Newswire logoNZ Newswire 5/05/2017 Jonathan Underhill

New Zealand firms lifted their expectations for inflation over the next two years, with the consumers price index seen firmly returning to the Reserve Bank's target level.

But they also dialled back expectations for economic growth and see a weaker kiwi dollar.

The Reserve Bank's survey of expectations showed respondents see annual inflation one year out at 1.92 per cent, up from the 1.56 per cent rate seen in the last survey three months ago, while the two-years-ahead rate is seen at 2.17 per cent, up from 1.92 per cent.

The kiwi dollar rose after the survey was released to US68.83c from 68.67c immediately before.

The survey comes a week before the Reserve Bank is scheduled to release its monetary policy statement, having kept the official cash rate unchanged at 1.75 per cent in its February MPS and signalled only one quarter-point increase by the first quarter of 2020.

Data this week showed wage inflation is running at a subdued 0.4 per cent as migrants help flood the jobs market and keep wage pressures low.

"We expect the Reserve Bank to hold the OCR at 1.75 per cent next week," said Satish Ranchhod, senior economist at Westpac.

"However, with the inflation environment looking firmer than it has been for the past few years, the RBNZ is likely to give a stronger signal that the next move in interest rates will be up.''

Firms trimmed their expectations for economic growth, on an annual real gross domestic product basis to 2.81 per cent for the year ahead from 3.11 per cent and to 2.58 per cent in two years' time from 2.88 per cent in the last survey.

Growth on that basis was 2.7 per cent in calendar 2016. The jobless rate is seen holding around current levels, edging up to 5.1 per cent in one year's time.

Wages growth is expected to pick up, though. Annual wages growth one year ahead is seen at 2.41 per cent and to 2.71 per cent in two years.

The survey was conducted from April 21-24.

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