By David Hargreaves
The latest quarterly Reserve Bank Survey of Expectations, has shown another drop in the anticipated rate of inflation over the next two years to just a touch over 2% - very close to the level of inflation the RBNZ explicitly aims to achieve.
Also falling are expectations of house price inflation - which are now being newly measured in this survey. House price inflation is expected also to be little more than 2% in two years time - which suggests that general opinion is that there will be no short-term uplift in the housing market.
Interestingly, and fairly unusually, though, the shorter term general inflation expectations - over the next year - have moved in the opposite direction to the two-year expectations, with a 10-basis-points rise to 1.87%.
The latter move possibly represents a reaction to some perceived short term rises in actual inflation through things such as food price rises.
The Reserve Bank Survey of Expectations asks a sample of economists, business and industry leaders questions relating to perceptions and expectations on a range of economic indicators.
It is closely watched by the RBNZ itself and can be very influential in terms of the bank's thinking on interest rate moves.
The latest results, ahead of the RBNZ's latest Monetary Policy Statement and review of official interest rates on Thursday (9th), would suggest the expected 'steady as she goes' line from the RBNZ is justified.
As well as the one and two year picks for inflation, the RBNZ has now started (in the past two surveys) seeking views of longer term inflation too - as well as house price inflation expectations.
These longer term views have shown a fall since the last survey came out in August.
The survey respondents now expect inflation in five years time of 2.11%, down from 2.15 in August, while the pick for inflation in 10 years time is 2.03% down from 2.13%.
In terms of house price inflation expectations, this involves expectations of the annual percentage change in the Quotable Value Quarterly House price Index for one and two years out.
In the latest survey, the expectation is for a rise in the index over the next year of 2.31%. That's a sharp fall from the 4.2% expected in August.
As for two years out, the expected annual rate of increase has dropped from 3.46% in August to 2.01% in the latest survey.
Normally expectations don't move much from survey to survey, but on the back of some substantial increases in actual inflation earlier this year, there was a matching sharp increase in inflation expectations.
Back in February, the expectation of the inflation rate two years out jumped from 1.68% to 1.92%. That's a very big move by the standards of this survey. It then subsequently moved up well above 2% in the following survey.
However, the RBNZ didn't react either to the actual or expected rises in inflation, being prepared to 'look through' them in the belief that inflation would subside again.
The RBNZ is universally predicted to keep the OCR at 1.75% when making its next call on interest rates on Thursday, with the main point of contention whether it will move more to a 'tightening bias' with its monetary policy.