Inflation expectations dwindle as shine taken off economic growth

Expectations of inflation: actual & expected (Reserve Bank)

New Zealand businesses see a tamer track for inflation over the next two years as they trim their expectations for economic growth, suggesting the central bank doesn't have to rush to raise interest rates again.

The consumers price index is seen rising at an annual 1.96 percent on a mean basis in the year ahead, down from the 2.08 percent rate seen three months ago, according to the Reserve Bank's survey of expectations. Two-year inflation expectations fell to 2.23 percent from 2.36 percent.

For the September quarter, CPI is seen rising 0.5 percent, down from 0.59 percent last quarter. Inflation is seen slowing to 0.36 percent in the fourth quarter of the year.

Businesses see less inflation in an economy that may not be growing as fast as expected. The one-year ahead expectation for gross domestic product was trimmed to 3.1 percent from 3.3 percent and two years out the annual pace is seen slowing to 2.7 percent from 2.9 percent.

The survey comes after the release of the Treasury's pre-election fiscal and economic update, which also points to a slower pace of growth. The Treasury cuts its forecast for GDP in the year ending March 31, 2015, to 3.8 percent from its 4 percent forecast in the May budget, citing weaker commodity prices and tamer inflation.

The RBNZ survey shows one-year-ahead expectations for hourly earnings growth fell to 2.6 percent from 2.9 percent, while the two-year series fell 0.3 percentage points to 2.8 percent. Unemployment one year ahead is seen at 5.5 percent, down 0.1 percentage point from the second quarter, while the two-year-ahead rate held at 5.3 percent.

The survey was conducted on August 6-7 and was of 83 business managers and professionals.


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