Cost pressures on Kiwi businesses remain "extreme" according to a preliminary reading of the October ANZ Business Outlook.
ANZ chief economist Sharon Zollner said a net 85% of firms (up one percentage point) were expecting higher costs in the next 12 months.
This is against a backdrop of huge global supply issues. New Zealand's September quarter inflation figures are out next week and expected to show annual inflation rising above 4%.
Zollner says the latest Business Outlook Survey shows that Inflation pressures remain "intense", with 12-month-out inflation expectations still above 3%.
The Reserve Bank targets inflation within 1% and 3%, with an explicit target of 2%.
The latest ANZ survey shows that businesses are matching their inflation expectations with intentions of raisng their prices.
Now, a net 64% of firms (up from 58%) are expecting to put their prices up.
In terms of overall business confidence, this eased 2 points to -9, but "own activity" jumped 6 points to 26.
Zollner said Auckland firms are showing "real fortitude", though notes that this early reading of the monthly survey results isn’t a large sample.
"The preliminary ANZ Business Outlook data for October saw most forward-looking activity indicators hold up or improve." she said.
"Auckland firms reported higher business confidence, own activity expectations, investment intentions, export intentions and profit expectations (and cost and inflation pressure) than elsewhere, and employment intentions are holding up well.
"One possible explanation is that the expectation questions implicitly compare to today. If Auckland firms expect restrictions to ease, they’ll expect more activity.
"But that reasoning doesn’t apply to investment and employment intentions in quite the same way, as these wouldn’t have tanked like current activity.
"It’s encouraging, but we’ll put more weight on the full-month results."
Some of the key results, compared with September:
- Business confidence eased but own activity expectations rose 6 points.
- Investment intentions jumped 5 points, while employment intentions eased 1 point.
- Expected profitability saw a 13pt bounce, with just a net 3% of firms expecting lower profits. That’s despite extreme cost pressures, with a net 85% of firms reporting higher costs, similar to last month.
- Capacity utilisation, which normally correlates well with GDP, lifted from 17% to 20%.
- Only a net 4% of businesses reported lower activity than a year ago. A net 11% of firms are reporting higher employment than a year ago.
- Inflation pressures remain intense, with inflation expectations still above 3% and pricing intentions rising from 58% to a net 64% of firms expecting to lift their prices in coming months. Cost pressures are extreme, with a net 85% of firms expecting higher costs, up 1 point.
26 Comments
I wonder how raising OCR and mortgage interest rates will bring that 10.9K down.
If the cost keeps rising, more likely the orders will be cancelled.
This is what happens when simple tries to control cost pushed inflation by increasing interest rates; the tempering of inflation works by destroying businesses.
CapitalNone is correct, increasing OCR takes the heat out, and businesses need to compete for the demand
Keeping OCR at this ridiculously low emergency level is a recipe for the type of inflation that erodes everyones standard of living and spending power. The only positive from a govt perspective is that it inflates away the debt.
For the country as a whole it is bad!!!!!!!
Raising OCR helps to increase the cost of borrowing, attract more deposit, in a way to influence consumers to spend less and save more so that we can achieve reducing the demand to bring inflation down. Business owners will be less encouraged on expanding to prevent overheating our economy further. So it's necessary to raise OCR in the current economy setting.
There's still some gems - High Street, Britomart, Commercial Bay.
But yes much of it is quite desolate now, especially south of Victoria Street. CRL hasn't helped.
I imagine it will be pretty grim once things open up, surely quite a few cafes / restaurants will shut down (or have already).
Just a reminder that inflation expectations are a terrible indicator of anything... The US Fed published a hard-hitting paper on this last month (https://www.federalreserve.gov/econres/feds/files/2021062pap.pdf)...
Abstract: "Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.
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