This as annual inflation drops to 5.6%
Short-term and medium-term CPI inflation expectations dipped after Stats NZ’s September quarter data showed annual inflation hit 5.6%, down from the previous quarter’s 6%, according to the Reserve Bank.
RBNZ’s latest Survey of Expectation (Business) found that one-year-ahead annual inflation expectation decreased by 57 basis points from the last quarter to 3.6%, while the mean two-year-ahead annual inflation expectation fell slightly to 2.76%, staying within the inflation target band of 1-3%.
The RBNZ survey, which closed on October 26, also showed that five-year and 10-year projections have slightly increased but remained within the 1-3% inflation target band. The means five-year-ahead annual inflation expectation rose to 2.43%, an 18bp lift from the last quarter, while the mean 10-year-ahead annual inflation expectation rose by 6bp to 2.28%.
House prices set to rise
On house prices, survey respondents are anticipating an increase over the next two years. The mean estimate for annual house price growth one-year-ahead increased 3.42 percentage points to 4.84%, and the two-year-ahead expectation rose to 6.22%, 1.8ppt higher than the previous quarter.
OCR: To hold then fall
The OCR is expected to remain stable by the end of the December quarter, then decline in the next year, with the mean estimate for one-year-ahead OCR dropping to 4.99%, the RBNZ survey found.
The OCR is currently at 5.5% and was last raised by 25bp from 5.25% on May 24. The next Monetary Policy statements will be out on November 29.
Wage growth to ease, unemployment rate to grow
The survey respondents’ expectations for annual wage inflation declined, with the mean one-year-ahead expectation falling 61bp to 4.43%, while the two-year-ahead expectation fell by 13bp to 3.53%.
On the unemployment rate, there has been a slight increase in expectations in the one-year-ahead, reaching 4.51%, while the two-year-ahead expectation decreased by 2bp to 4.66%.
Outlook for GDP growth positive
The RBNZ Survey of Expectations, which can be found here, also revealed optimism among respondents about GDP growth, with expectations for the annual change in real production-based GDP for the next two years increasing.
The average expectation for GDP growth one year ahead saw a 24bp increase, climbing from 1.02% in the previous quarter to 1.26%; while the average expectation for GDP growth two years ahead rose to 2.15%, up from 1.95% in the preceding quarter.
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