Inflation expectations slow in RBNZ survey, unemployment seen as staying high

New Zealand's expected pace of inflation over the coming two years has slowed down from the start of the year, though unemployment is still picked as staying relatively high, according to the latest central bank survey.

Respondents to the Reserve Bank's March survey of expectations do not seen any sign of rising interest rates, with consumer price inflation seen at 1.67 percent for the year ahead and 2.17 percent in two years. That is down from 1.77 percent and 2.27 percent, respectively, from the January survey.

"Monetary conditions are currently perceived as being easy and are expected to remain easy over the forecast horizon," the Reserve Bank says in its commentary.

Governor Graeme Wheeler has found himself stuck between a booming property market in Auckland and $30 billion rebuild in Christchurch gathering momentum, and a tepid economic recovery and subdued inflation with the strong kiwi dollar taking the sting out of imports.

ASB economist Jane Turner says the decline in medium-term inflation expectations is in line with the moderation in various measures and underpin the downbeat environment.

"Due to the subdued near-term inflation outlook, we expect the RBNZ will leave the OCR on hold at 2.5 percent until March 2014." 

The 74 respondents were still pessimistic about the labour market, with one-year ahead expectations for the unemployment rate down 0.1 of a percentage point to 6.7 percent, while two-year ahead picks were unchanged at 6.3 percent.

Earnings growth expectations fell, with year-ahead wage increases expected to be 2.3 percent, from 2.5 percent in the January survey and the two-year ahead outlook falling 0.2 of a percentage point to 2.7 percent.

Still, they are slightly more upbeat about the economy, with real gross domestic product growth of 2.3 percent expected for the one-year horizon and 2.6 percent for the two-year. That is up from 2.1 percent and 2.3 percent, respectively, in the previous survey.

Respondents see the kiwi dollar trading at 84 US cents at the end of June, falling to 83 cents by the end of the year. They predict it will trade at 82 Australian cents by the end of December.

(BusinessDesk)