Inflation expectations have fallen and little movement in interest rates is forecast to be on the cards, but New Zealand's economic growth is also expected to be subdued, according to a survey of business managers for the Reserve Bank of New Zealand.The R
Inflation expectations have fallen and little movement in interest rates is forecast to be on the cards, but New Zealand's economic growth is also expected to be subdued, according to a survey of business managers for the Reserve Bank of New Zealand.
The RBNZ's quarterly survey of expectations showed consumers price index inflation is picked to reach 3.4 percent in a year, down from 3.9 percent in the previous quarter's survey.
That is higher than annual CPI inflation of 1.5 percent recorded for the three months to September, the lowest since 2004.
Tax rises and other charges such as the introduction of the Emissions Trading Scheme are expected to create inflationary pressures in the short term, and the central bank has picked inflation to peak briefly around 5 percent.
Expectations of inflation two years ahead have held steady at 2.6 percent, up just 0.03 percentage points, compared with the RBNZ's own assumption of 2.5 percent.
"This measure is considered a useful indicator of medium-term inflation expectations, and the fact that it is not higher will be of comfort to the RBNZ," ASB economist Christina Leung said.
"At the September MPS (Monetary Policy Statement), it had highlighted the potential for the upcoming boost to headline CPI from a host of government charges to spill over to changes in wage and price-setting behaviour."
However, ASB believed it was optimistic to assume inflation expectations would decline in the near future, and the RBNZ would become increasingly uncomfortable with inflationary pressures in the next year.
The RBNZ was tasked with keeping CPI inflation within a target band of 1-3 percent, on average, over the medium term.
The RBNZ's Official Cash Rate is currently 3 percent. Survey respondents believed monetary conditions were currently neutral, and expected to remain so next year.
Respondents to the survey, conducted by ACNeilson on November 10 and 11, also believed the unemployment rate would continue to fall, to 6 percent by next September compared with the latest figure of 6.4 percent.
The economy was tipped to remain subdued, with gross domestic product growth of 2.5 percent expected in a year's time, up 0.2 percentage points from the last survey.
Growth two years out was tipped to rise to 2.7 percent, compared with the latest GDP figures of 1.9 percent growth.
