Mixed inflation outlook signals steady rates
The Reserve Bank’s latest Survey of Expectations shows a sharp drop in near-term inflation predictions, now at 2.05% (down from 2.4%), reflecting recent declines in actual inflation and suggesting stability around 2% for the next year.
Longer-term inflation expectations rise
While short-term inflation is expected to ease, longer-term forecasts are creeping up.
Notably, the two-year inflation expectation rose slightly to 2.12% from 2.03%, while five- and 10-year forecasts increased to 2.24% and 2.19%, respectively.
“The lift in longer-term inflation expectations… leaves them at levels that are still close to the RBNZ’s target,” said Satish Ranchhod (pictured above), senior economist at Westpac NZ.
RBNZ likely unfazed, sees balanced inflation risks
The mixed outlook aligns closely with RBNZ’s medium-term inflation target, indicating that inflation expectations are relatively contained.
“We think that today’s survey and other recent data will leave the RBNZ feeling comfortable,” Ranchhod said, adding that a 50bp rate cut is expected next week.
However, rising domestic costs, including council rates and insurance, underscore that “risks for inflation are not all in one direction,” highlighting the need for close monitoring in 2024.
Outlook for RBNZ policy
With inflation expectations fairly stable but mixed, Ranchhod anticipates that RBNZ will adopt a “more gradual and data-dependent approach” to any future rate adjustments, closely watching both domestic and international cost trends as it moves forward.
Read the Westpac IQ article here.
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