Business confidence has climbed off the floor, but expectations of future inflation still remain "far too high", according to the latest monthly ANZ Business Outlook Survey (ANZBO).
ANZ chief economist Sharon Zollner said overall business confidence lifted 9 points in August to -48, while expected own activity rose 5 points to -4.
"Most activity indicators lifted for a second month, with capacity utilisation a marked exception," she said.
"Inflation pressures remain intense. Inflation expectations were all but unchanged at their highs, and the net proportion of firms expecting higher costs was steady."
Among some of the outcomes in the latest survey, there was a modest bounce in sentiment in the residential construction sector - after this sentiment had plunged. Cost and inflation expectations are down from their highs - but not by a lot.
Zollner said the key themes of the August survey were:
- Activity measures generally lifted modestly, including business confidence, own activity, export intentions, investment intentions and construction intentions. The exception was capacity utilisation.
- The services-led fall in pricing intentions is encouraging, but inflation expectations eased only slightly. The strongest pricing intentions were in construction and retail.
- A mood lift is evident amongst manufacturing, agriculture and services firms. Retail firms continue to get more pessimistic.
Zollner said while mildly rebounding activity indicators were ostensibly good news, the latest survey "was not particularly encouraging" for the Reserve Bank (RBNZ).
The RBNZ has been busily forcing up interest rates through the Official Cash Rate - hiking it by 50 basis points at each of the last four reviews - to fight inflation.
"Business inflation indicators have been very reliable in terms of predicting where inflation is heading," Zollner said.
"They are a smidgen lower at best, but remain far too high. And firms outside of the retail sector seem to be feeling more confident about the activity outlook."
Zollner said the risks are tilted towards the RBNZ having to continue on with OCR hikes next year to cool the economy sufficiently to feel comfortable they’re getting on top of the inflation problem.
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