A survey the Reserve Bank (RBNZ) pays close attention to has shown a drop in the expected level of inflation. It also shows a rise in expected house prices.
According to the key survey results, the expectation for inflation in two years' time (the most watched finding) has dropped to 2.76% in the latest quarter, down from 2.83% in the previous quarter.
The one-year-out result is a sharp drop, to 3.6% from 4.17%.
The results of the latest Survey of Expectations, carried out quarterly for the RBNZ, will carry weight with the central bank in making its next decision on the Official Cash Rate on Wednesday, November 29.
Following on from the actual fall in the annual rate of inflation as of the September quarter to 5.6% from 6.0% and the rise in the unemployment level also at the September quarter to 3.9% from 3.6%, it all means there's now no chance at all the RBNZ will move the Official Cash Rate, currently on 5.5% at the next review.
The RBNZ said the the data for this quarter was obtained from 37 business leaders and professional forecasters by Research New Zealand – Rangahau Aotearoa on behalf of RBNZ. Field work for the survey was run between the 18th and 26th October 2023.
Survey of expectations fieldwork was carried out for the first time by Research New Zealand – Rangahau Aotearoa. The new research provider was selected through a competitive procurement process, as the contract with the previous provider the NielsonIQ expired in September 2023. No changes to the survey questionnaire nor panel of respondents have been made at this stage.
The RBNZ's detailed explanation of the latest results shows expectations of inflation further in the future have actually risen a little.
The expectation for five years' time has gone up to 2.43% from 2.25%, while the 10-year expectation has risen to 2.28% from 2.22%. This won't unduly perturb the RBNZ since both those results are still 'anchored' somewhere towards the middle of the central bank's targeted 1% to 3% inflation range.
However, those results do suggest there's a growing feeling that inflation may 'stick' at higher levels in the future than we've seen in the recent past.
The survey also asks for respondent's views on where they see the REINZ House Price Index in one years' time and in two years' time.
As actual house prices have languished recently, then so have views on future prices - but they are now perking up noticeably.
Survey respondents expect the HPI to be up 4.84% in a year, compared with an expectation of just a 1.42% rise in the last quarter.
And in two years the expectation is for a 6.22% rise, up from a previous expectation of 4.42%.
The RBNZ seeks to have inflation within 1% to 3%, with an explicitly targeted 2% level. So, what it looks for from this survey is for inflation expectations to be comfortably 'anchored' at around 2%.
Expectations of high inflation are a killer, since these expectations get baked into future pricing and wage intentions. The RBNZ wants those inflation expectations to wither as soon as possible.
The key point around this particular survey is that regardless of how accurate the forecasts prove to be - and if you look back you'll find they haven't been accurate - what the RBNZ really wants to assess is how confident the 'market' is that it, the central bank, will be able to control inflation in future.
The latest results will give the RBNZ a fair degree of satisfaction that matters are moving in the right direction.
When announcing the change of research provider for the survey last quarter, the RBNZ said it had begun investigations to broaden survey coverage and expand the sample size to increase the statistical quality of results. It will also review the survey methodology and the questions we ask respondents.
It is planned to conduct a public consultation to elicit feedback on the proposed approach to survey enhancements over the coming year.