Business confidence falls but inflation expectations rise; construction wobbles?

ANZ Business Outlook survey preliminary results for March show business confidence has fallen but businesses still expect to increase their prices and see inflation of close to 2% in a year's time; construction 'took a hit'

9th Mar 21, 1:27pm by David Hargreaves

Preliminary March results for the ANZ Business Outlook survey show that overall confidence has fallen and increasing numbers of businesses are still seeing higher costs and want to increase their prices.

And there may be early signs that the previously super-strong construction sector is wobbling.

ANZ chief economist Sharon Zollner said business confidence fell 7 points to be "flat" while the activity outlook fell 4 points to +17%.

Rising though again were cost pressures and inflation expectations.

"..costs [were] up 2 points to a net 74% expecting higher costs ahead," Zollner said.

"Firms are intending to pass the costs on where possible, with a net 49% of firms intending to raise their prices, up 3%pts."

Inflation expectations for the next 12 months lifted too, from 1.76% to 1.95%.

The Reserve Bank aims for inflation between 1% and 3% with an explicit target of 2% - so, pretty much what businesses are expecting in 12 months' time.

In other details, Zollner said employment intentions were up 5 points and capacity utilisation up 2 points.

“The economy is entering a phase in which gains will be harder won,” she said.

“The tourism sector pain is becoming more palpable, and booming sectors such as construction are running up against constraints in terms of the availability of labour and, increasingly, imported materials.

“We don’t generally report the sectoral breakdown in the preliminary results, but it’s worth noting that while it’s still standing strong in a relative sense, construction took a hit in these early results, suggesting the mixed data are not all about the recent lockdown.

“Construction has been a blindingly bright spot in the New Zealand economy in the past six months, and a cooling there would change the economic picture considerably.

"Is it noise, supply disruption and eye-watering cost increases, or something else?

“The full-month survey should cast more light.”

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8 Comments

by bw | 9th Mar 21, 3:16pm 1615256177

What does a population faced with rising prices and stagnant income do?
Sense tells us that they'll spend the same $ amount, but on less product.
But in this World of free money, the answer is to borrow more (Sorry. Expand the Household Balance Sheet), of course.

by Hummy | 9th Mar 21, 3:51pm 1615258297

2% sounds lite

by Carlos67 | 9th Mar 21, 5:00pm 1615262437

2% inflation is a joke its already running at at least 5%. If you factored in housing its running way higher even than that. Tried sending anything overseas of late ? its doubled in cost. No idea how they arrive at the figures but I can make a guess thats more accurate than official figures. Take a walk round the supermarket and look at the prices. Is that 2% per year or 2% per month ? because in the real world its been 2% per month.

by donny11 | 9th Mar 21, 5:20pm 1615263611

I'd say 5-7%, if you didn't implement hedonic regression & included investment goods i.e land. That's where you would be IMHO

by EdwardD | 9th Mar 21, 5:24pm 1615263862

I totally agree. I was at the supermarket yesterday and couldn't believe the increases. I tend to purchase the same items/brands on a regular basis, therefore know normal/sale pricing.

by pacifica | 9th Mar 21, 11:34pm 1615286092

but but but those tvs and basic cellphones are cheaper, and the price of bread and milk has not changed much right. That's all people need. They can build houses out of defunct tv screens, dress kids in cellphone parts for uniforms and eat all the bread and milk and not die from malnutrition right. A oversimplification I know but that is literally what the peddlers of 2% inflation are thinking, that housing is not necessary, luxury goods like tvs are more important and a more significant cost than housing that need repurchasing every month, basic medical needs must be instead luxury goods but oh their managed vehicles & yachts have a lower inflation and that's important. Because even more NZders literally have turned to sleeping in cars, on boats and skipping meals to get by. Even a basic thing like standard costs for water, and medical have far exceeded 2%. What is even more concerning is that in Stats NZ minds prices for property maintenance & household energy have been going down a substantial degree, (not unless you bring in illegal wages and dumping methods). Whatever the peddlers of 2% are smoking they better share it to the rest of the populace quick because the clothes have started to look very transparent.

by pacifica | 10th Mar 21, 12:16am 1615288597

Whoa "Kittens: We removed kittens as a separate item from our price collection for pets, as kitten prices are collected as part of the cats sample." I did not expect that one because kittens do have substantially different prices compared to adult cats. One you can pick up for free the other you need to pay a lot more for.

Hmm there are a lot of weighting flaws from even the 2017 looking back e.g. Housing and household utilities 24.51percent, but food and alcohol is 19.25 and 7.11 respectively showing a combined total of 26.36 with high weights for restaurant meals and ready-to-eat food 4.93 percent in 2017 versus grocery food 6.60 percent in 2017. Communication services 3.61 percent, The recreation and culture group has a weight of 9.40. I can tell them now a home, rents, rates etc are far more important and costs for housing affect people far more than 3 times a couch (which can be free), tv (which often can be negligible and one cost can last over a decade), and phone bill. In fact I would go out on a limb and say housing costs are a far over fifty times more important than a single restaurant meal and the optional groceries which can be substituted with locally sourced growth and cooking. Perhaps these CPI researchers just really cannot do without the nightly dinners in their favourite restaurants, pubs, & craft beers. In fact perhaps they are living in these restaurants and pubs by the looks of things and main concern is where they are going for their next holiday.

by Pusheen | 10th Mar 21, 12:55am 1615290958

Watch how RBNZ & govt reacts: only one way, the house of cards, can be glued, supported with left and right boards even.. it's until basically all audiences left the room, no longer interested with the trick.