'The fact is, the economy surprises forecasters all the time, and we’re keeping an open mind'

Inflation pressures are continuing to rise, according to the results of the latest monthly ANZ Business Outlook Survey.

ANZ chief economist Sharon Zollner said the "upward trend" in inflation pressure had continued.

"The net percent of firms expecting to increase their prices eased very slightly but is still trending in the opposite direction to our and the RBNZ’s [Reserve Bank's] inflation forecasts," she said.

"The net percent of firms expecting higher costs also remains elevated."

Zollner said the increase in wage pressures seen looks very modest thus far, "but the level of pricing intentions is not consistent with widespread expectations that headline inflation will trend lower this year, nor are the expected wage measures currently particularly supportive of forecasts of flat or falling wage pressure".

She said that 'headline' Consumers Price Index (CPI) inflation looks set to drop back into the RBNZ's 1%-3% target range for the March quarter (the annual rate was 3.1% as of the December quarter)  and the RBNZ noted multiple times in the recent Monetary Policy Statement that they are “confident” it is on its way back to 2%.

"But the fact is, the economy surprises forecasters all the time, and we’re keeping an open mind."

In terms of the overall survey results, Zollner said business confidence fell 5 points in February, but at 59 it is still very strong. "Overall, the activity indicators across the survey are solid."

The inflation indicators were mixed. The net percent of firms expecting to raise prices in the next three months fell 4 points to 53%, giving up about half of last month’s jump, while the amount by which firms expect to raise prices eased a touch from 2.1% to 2.0%.

Expected wage growth is rising, and the net percent of firms expecting cost increases (79%) is the highest since July 2023.

"Economic momentum continues. Reported past activity (the best indicator of GDP) remains high, though the volatile construction sector saw a sharp fall,"  Zollner said.

"Reported past employment was mixed, higher for manufacturing but lower elsewhere."

The sharp turn in interest rates seen from late-November until mid-February has had an impact on the Business Outlook survey – expected credit conditions and profitability have taken a hit, and past activity has also seen a bit of a wobble, Zollner said.

"But with the RBNZ having engineered an easing in monetary conditions last week, it will be interesting to see if these indicators stabilise next month."