“Dang” was the word of the day as ANZ released its latest business outlook survey, finding that cost expectations rose in every sector from December to January.
The ANZ Business Outlook survey found business confidence somewhat recovered in the new year “as the shock of the November Monetary Policy Statement wore off a bit”.
“Business people appear to have come back from holiday in slightly better spirits.”
Both cost expectations and pricing intentions moved higher in the survey (costs by more, suggesting worsening margin squeeze), while inflation expectations were “stuck” around 6%.
In retail, a net 79% of firms surveyed by ANZ said they intended to increase prices in the next three months while in manufacturing a net 66% were also intending to raise prices.
Looking ahead, firms in retail, manufacturing and construction said they expected costs in three months time would be higher, with the highest cost expectations in agriculture.
“Economy-wide, costs are expected to go up 5.8% over the next three months, but prices by only 3.7%."
ANZ said inflation pressures remained intense and “there’s good reason for the RBNZ to keep hiking [interest rates] a while yet”, and activity measures generally saw a partial bounce-back from the December falls, led by manufacturing, services and retail.
"The survey still implies that the RBNZ is in danger of engineering a harder landing than intended, with downside risk to residential investment, business investment and overall GDP."
But, on the other hand, the survey indicators for consumption, employment and inflation "were consistent with RBNZ forecasts".
It said "the regrettable sturdiness in the direction inflation indicators continue to highlight that the RBNZ has a big job to do bringing inflation back down to 2%".
New Zealand’s biggest bank said wage growth was a must-watch, as a key driver of non-tradable inflation. Wages rose in manufacturing, agriculture and construction, it said, but fell in the retail and services sectors.
Expectations for wage settlements for the next 12 months ticked up to 5.5%, but overall firms anticipated raising wages by less in the next 12 months than they did in the past 12 months.
More firms also expected to raise wages in the near term, with 89.5% of respondents saying they expect to raise wages over the next 12 months.
“That’s slightly higher than the proportion of firms who reported that they raised wages in the past 12 months.”
ANZ said manufacturing (87%), construction (87.1%) and services sectors (87.8%) were the least certain that they’d be raising wages, compared with 97.3% of retailers and 94.4% of agricultural firms.
Employment intentions were negative in all sectors.
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