Households still doubt inflation will fall back under 3%

Personal Finance / analysis

The latest quarterly Household Expectations Survey for the Reserve Bank finds households still see inflation above the RBNZ's 1% to 3% target in two years' time, and they are less optimistic about chances of being able to get another job

15th Aug 24, 10:15am by David Hargreaves

Source: 123rf.com

Households still don't think inflation will get back into the Reserve Bank's targeted 1% to 3% range within the next two years - but they are at least getting more confident inflation IS coming down.

According to the latest quarterly Household Expectations Survey for the Reserve Bank (RBNZ), kiwi households see inflation (mean measure) at 3.1% in two years' time. In the previous survey three months ago, households had seen inflation as being 3.6% in two years' time - so, the expectations are coming down, they are just quite a bit higher that the expectations of, for example economists.

Actual inflation as measured by the Consumers Price Index (CPI) was at 3.3% as of the June quarter 2024, down from 4.0% in March. In its latest Monetary Policy Statement the RBNZ is forecasting that inflation will be just 2.3% by the end of the current (September) quarter.

In terms of the survey, the expectation of inflation in just one year's time has also come down (from 5.3%), but at 4.1% it's still quite a bit higher, even than the current reality.

As inflation is coming down, unemployment is going up, hitting 4.6% as of the June quarter up from 4.4% in March. And the RBNZ's latest forecasts have unemployment now peaking at 5.4% next year.

And with unemployment rising, households are becoming less optimistic about their chances of being able to get another job if they lose their current one. In the latest survey on average households rate a 43.8% change of being able to get another job, down from 44.5% in the previous survey and down from 51.2% a year ago.

Concerns about being able to make mortgage payments have risen a little in the past three months since the last survey as well. On average the chance of not being able to make a mortgage payment is now seen as 13.9%, up from 12.3% in the previous survey. However that is down on the 17.3% level seen two surveys ago. A year ago the figure was 13.4%.

The RBNZ Household Expectations Survey was re-developed in the first quarter of 2022 and renamed to Tara-ā-Whare - Household Expectations Survey.

The data for this report was collected by Research NZ on behalf of the RBNZ. Fieldwork for this survey was conducted between July 17 and 26, 2024. The sample size for this quarter’s survey was 1,002. The survey is conducted online and is made up of a nationally representative sample of New Zealand residents aged 18 and over.

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51 Comments

by RookieInvestor | 15th Aug 24, 10:28am 1723674532

makes me wonder how much attention the average household pays to the economy and CPI figures.

by Retired-Poppy | 15th Aug 24, 10:39am 1723675162

It could also be the rising costs households are still witnessing at the coalface. When was the last time you saw your groceries, rates, insurance or vet bill fall?

by sgtshortcut | 15th Aug 24, 10:44am 1723675499

Assuming household inflation includes mortgage payments then with fixed rates it will certainly feel higher than 3% for longer

by ChrisOfNoFame | 15th Aug 24, 11:53am 1723679630

Bingo !!! Nailed it.

See my comment below as to why you're right.

by RookieInvestor | 15th Aug 24, 11:24am 1723677886

groceries - 1 month ago they fell for the first time in 6 years, still i get it, not by much

rates - never decrease

insurance - I haven't seen any increase in insurance cost, when i did the online quote a few weeks ago it was the same.

Vet bill - have no pets, unless you consider flat mates as pets.

by agnostium | 15th Aug 24, 11:34am 1723678460

Groceries are up again.

by Retired-Poppy | 15th Aug 24, 11:38am 1723678700

"unless you consider flat mates as pets"

😆🤣

by interesting1234 | 15th Aug 24, 12:55pm 1723683316

unless you consider flat mates as pets.

I've lived with some in the past that were animals for sure XD

by kpnuts | 15th Aug 24, 10:44am 1723675477

the average household doesn't - it pays attention to the 10% rates rises 7% insurance increases increases in tradie rates groceries still going up and gas and electric prices rising ---- the real unavoidable costs in life and judges life on those not massaged government and institutional figures

by dumbthoughts | 15th Aug 24, 12:05pm 1723680319

Who in the real world (i.e. the "average household") gives a rat's arse about what the statistics have to say about inflation? It's just statistical bollocks used and abused by people in policy setting, government etc who are all paid well enough to be insulated from the effects.

The average pleb feels it at the coal face. Around the time of the election I remember commenting that I don't think polls are all that useful as it's the "vibe of the nation" that matters ... and the vibe was the government was going to change. You pick that up from social media comments, dinner party chit chat etc. Same goes with the cost of living/economic climate. I go to another tedious dinner party with the wife, and all her friends are moaning about the cost of everything. Tells me more than I'd ever learn from the CPI data or whatever.

Like Luke turned off his targeting computer and trusted in the Force, so does the average punter use the "Force" of knowing what their grocery bill used to be versus what it is now, or how long the car lasts on the same $ amount of fuel each week.

You open your rates bill and see a whole load more money is demanded by the highwaymen at the Christchurch City Council who want to build a stadium for the Crusaders to lose in, albeit in nicer surroundings.

You open your insurance premium renewal letter and see eye-watering increases.

You note that while there are some increasingly appealing deals on things you don't need to live, the essentials still seem to be increasing in price.

You check your power bill and fall off the chair at the price for running a bit of winter heating.

Who actually cares what some tortured data has to say out in the real world?

by ChrisOfNoFame | 15th Aug 24, 11:50am 1723679456

"Who in the real world (i.e. the "average household") gives a rat's arse about what the statistics have to say about inflation?"

When that statistic is the CPI - you're 100% correct. See my comment below for why.

by ChrisOfNoFame | 15th Aug 24, 11:51am 1723679488

"makes me wonder how much attention the average household pays to the economy and CPI figures."

See my comment below. They don't experience the reported CPI change. For them (us!) ... It's is far worse !!!

by rastus1 | 15th Aug 24, 10:34am 1723674890

Inflation may flatten out, however the significant price rises across the board have created a gap that is unlikely to be closed.

So in spite of the interest reductions, the standard of living in NZ has dropped permanently and the lifestyles of yesteryear are no more.

And it hasn't stopped dropping yet. I'm not sure if the penny has dropped regarding this new normal?

by Independent_Observer | 15th Aug 24, 11:12am 1723677138

Yes we flooded the country with a lot of people while GDP was flat so productivity per capita is down = lower living standards across society.

Will be interesting now if we have dropping migration (or net outflow) and negative GDP the next 12 months how much worse this might become.

All the result of the policies of the last decade or two of cheap/er money and more immigrants. It improves GDP but does it really make the country a better place to live?

by Rumpole | 15th Aug 24, 11:57am 1723679855

Agreed and if unemployment keeps rising and people cannot jobs where does the money come from to fuel inflation.

by JimboJones | 15th Aug 24, 10:41am 1723675311

Seems like a waste of money to me! They may as well survey households on nuclear physics while they are there...

by MikeM | 15th Aug 24, 10:43am 1723675437

Why do they survey people about a subject they know nothing about? Bizarre.

by Hastings | 15th Aug 24, 10:53am 1723676008

So the MPC have something to mull over in addition to their runes and tarot decks.

by Rumpole | 15th Aug 24, 11:59am 1723679984

A majority of Govt Bureacrats are drongos so you have the dumb asking dumb question of dumber people.

by ChrisOfNoFame | 15th Aug 24, 12:15pm 1723680947

"Why do they survey people about a subject they know nothing about? Bizarre."

At the risk of getting even less thumbs-up than I already do ... We could say the same of many commentators on this site.

On a more serious note, such information, i.e. future expectations, is a valid area of behavioral economics. Or put another way, people make financial decisions now - based on the perceptions of the future - that have far reaching impacts in future periods.

It can answer questions like, "What would people do if the RBNZ dropped the OCR down to 0.25% - while a global supply shock is in full swing, there is a labour supply freeze - and held it there for far too long?"

by John from Bunnings | 15th Aug 24, 10:59am 1723676380

I get the business surveys for inflation expectations because they set prices, but household surveys just seem like a waste of time

by Noncents | 15th Aug 24, 11:18am 1723677490

DIsagree. The consumer is the ultimate barometer as they are the ones doing the actual purchasing.

They are saying they are expecting their own coststo increase, which means they have less disposable income to spend, which means they will be making cuts. If that cut is your business then watch out.

by agnostium | 15th Aug 24, 11:36am 1723678567

100%.

Definitely not the sole source of truth but a really useful metric.

by Rumpole | 15th Aug 24, 12:02pm 1723680149

Yes but PMI report asks those who decide what consumers have done by buying or not buying and choosing to make/sell or not or discount - check TV adverts for everyones discounting almost everything to clear stock and create cashflow.

by morepork | 15th Aug 24, 11:01am 1723676486

Given the HLPI in June was 5.4% where CPI was 3.3%, no wonder people don't think inflation is falling that quickly

by Squishy | 15th Aug 24, 11:13am 1723677235

RBNZ are the experts, I'm sure they wouldn't take a risk on a hunch...

by Noncents | 15th Aug 24, 11:19am 1723677547

We really need a laugh icon.

by Yvil | 15th Aug 24, 3:50pm 1723693802

😂

by ChrisOfNoFame | 15th Aug 24, 5:33pm 1723700007

LOL. Use the /sarc tag.

by agnostium | 15th Aug 24, 11:37am 1723678677

by ChrisOfNoFame | 15th Aug 24, 12:17pm 1723681060

Can we stop with the CPI !!!

Household's don't experience the CPI.

Household experience the Household Living-costs Price Indexes (HLPI).

The CPI should only be used by the RBNZ.

Why? The CPI excludes many interest related costs, e.g. mortgage interest, business loan interest, etc. (while the RBNZ ignores the flow-on effect of these higher costs that they themselves forced upon us). Further, the HLPI lags the CPI and rises higher. And further lag gets introduced as banks are extremely slow to pass on OCR cuts.

The words households and CPI and inflation should never appear in the same sentence when household living costs are being discussed.

"But the USA uses a similar CPI", I hear people say.

Actually it is not similar. This is because most mortgages in the USA are on fixed rate 20-30 terms that are unaffected by the Fed changing their Funds Rate (like how our RBNZ uses the OCR). One should note that because NZ is different in this regard, the OCR should (and most probably does) act far faster - and far harder! - than the Fed Funds Rate. (Yet another thing our RBNZ - and pub economists - seem to miss.) Or put another way, a 1% change, up or down, in the OCR is like the Fed hitting the USA with a 2% change. (Actual multiplier being debated, but you get the idea.)

by james_viggy | 15th Aug 24, 11:49am 1723679391

I think many young people today expect permanent hyperinflation with fiat currency. As a millennial, I've only seen fiat lose value, printed out of thin air whenever there's a bailout. The incentives are too strong for this to stop. I don't view fiat as a savings tool, especially not when forced to lend it to a bank for them to speculate with. Luckily, I don't need fiat to save—my generation uses Bitcoin. Created in response to the 2008 crisis, Bitcoin has kept its promise of a debasement-proof, fixed supply, peer to peer digital cash.

In New Zealand, we're just now seeing relief from the inflation caused by the $50 billion printed in 2020-2021. Though we're experiencing a short-term deflationary bust, this is temporary as firms and individuals are forced to liquidate their assets to avoid bankruptcy. Which happens as a result of the whiplash higher in interest rates when the Central Bank stopped interfering in the market and suppressing them with money printing. We know the Central Bank has another $50 billion leftover to print from the $100 billion previously approved, likely to be used by the current government. Younger generations might never again trust governments to avoid printing money and causing inflation—it's a tool they all rely on, like an unsuccessful company diluting shareholders to stay afloat.

To make real progress, we could consider some policies gaining traction in the U.S., like removing reporting requirements for Bitcoin-to-dollar conversions, encouraging capital inflows, and adding Bitcoin to our reserves to back our fiat with something real. These ideas were highlighted in Robert F. Kennedy Jr.'s speech at the Bitcoin conference, link below. El Salvador has already adopted a strategic Bitcoin reserve and everyone can see them adding Bitcoin to it every day. This has lead to improvements in their credit rating and a fast decline in their interest rates.

https://youtu.be/ssYCRVpzcxc

by J.C. | 15th Aug 24, 3:25pm 1723692354

. As a millennial, I've only seen fiat lose value, printed out of thin air whenever there's a bailout. The incentives are too strong for this to stop. I don't view fiat as a savings tool, especially not when forced to lend it to a bank for them to speculate with. Luckily, I don't need fiat to save—my generation uses Bitcoin.

You understand well young Jedi.

Young people are quite savvy when it comes to understanding fiat debasement. Far more enlightened than the boomers IMO.

by DingleDorf | 15th Aug 24, 5:46pm 1723700766

That's a bit harsh. The Boomers had no say in the amount of lead based products they were poisoned with during their childhood, severely impacting their cognitive abilities and the various other horrible personality traits we see from them today.

by Yvil | 15th Aug 24, 3:55pm 1723694149

I liked your post James, especially about fiat debasement. I agreed with most of it until... "adding Bitcoin to our reserves to back our fiat with something real". There's nothing real about Bitcoin.

by J.C. | 15th Aug 24, 4:57pm 1723697847

That's just your reckon Dr Y. You could get the same opinion at any Ryman village across the nation.

The RBNZ doesn't even have any gold in its reserves. It has stated that it has not held gold reserves since 1991. This decision reflects the bank's stance that gold does not meet its liquidity requirements for foreign reserves management.

by Yvil | 15th Aug 24, 6:43pm 1723704208

Yes it's my opinion. J.C. tell me what's real about Bitcoin?

by james_viggy | 15th Aug 24, 7:49pm 1723708174

Every 10 minutes, I check to make sure that every sat (a small fraction of Bitcoin) ever created was earned through real work and energy, and that every sat can be traced from its origin to where it is now. By doing this I also ensure that no one can ever make more than the fixed limit of 2100 trillion sats (21 million BTC). To me, that feels a lot more genuine than relying on US treasuries to back our currency. Those are just promises from a central bank with a history of devaluing its money and funding wars—something I find unethical. I’d much rather see our Kiwi dollar backed by the neutral, unchangeable monetary policy of Bitcoin.

by redheadonist | 16th Aug 24, 10:59am 1723762784

"earned through real work"

That is funny, tell us another joke

by james_viggy | 16th Aug 24, 11:23am 1723764239

Proof of Work backs every unlocked piece of Bitcoin. My node verifies this Proof of Work, making it impossible to fake. The only way to produce Proof of Work is through real electricity usage. In contrast, there’s no way to verify if a dollar sent to you was backed by real work or simply printed out of thin air.

by nigelh | 16th Aug 24, 8:39am 1723754395

"This decision reflects the bank's stance that gold does not meet its liquidity requirements for foreign reserves management."

Change the liquidity requirements! Quite a number of other Central Banks feel it necessary to have some gold. Individually I like to have some hard yellow stuff in my back pocket. No paper gold. For RBNZ maybe 2-5% of foreign asset reserves in gold held in NZ.

Even Texas didn't trust the Fed or Treasury (whichever one held it) and had their gold repatriated to Texas.

by Takere | 15th Aug 24, 12:28pm 1723681737

SNZs food price index data today. 0.6% increase for the year to date.

It looks like they held out until the OCR cut was announced so everyone could feeeeels good for a few hours.

Add that to the Monkey Pox, (and possible lockdown with a big pharma one-in-all cure-all) Syphilis, Meth lollies, Recession/Stagflation & a tanking dollar. We're all good here in our little Banana Republic, ay?

by Noncents | 15th Aug 24, 1:00pm 1723683648

We are more a banana-milk republic.

by Yvil | 15th Aug 24, 3:15pm 1723691723

I can only reiterate that I believe that Central Banks will be forced to accept higher inflation rates than currently, for fear of destroying the economy (businesses and unemployment) even more than currently. My best guesstimate is that 2 - 4% inflation will be the new accepted "normal".

by ChrisOfNoFame | 15th Aug 24, 5:38pm 1723700313

LOL.

Hedging much? (I.e. you've said much less than you think you have.)

Other major central banks already target rates higher than 2 - 4% inflation.

by Hamish | 15th Aug 24, 3:18pm 1723691932

Going forwards supporting inflation I still see electrification as being a big one. And alongside this stranded or abandoned assets and infrastructure. And despite governments supporting immigration, it looks like we're getting to some sort of pinch point where there's too much infrastructure to maintain. I'd say a fair bit of that will continue to be maintained when it should just be abandoned. And at some point immigration won't be able to mask our demographics.

by ChrisOfNoFame | 15th Aug 24, 5:41pm 1723700462

That's a very interesting post.

Can you elaborate further?

by Hamish | 15th Aug 24, 8:02pm 1723708940

I'll try.

For both electrification and infrastructure catch up, it looks to me like a pretty compressed step change looming. Any manufacturing that has to switch from carbon based to electric fuel sources may all in a short matter of time be bidding for the same materials and expertise to do so.

From one end of the country to the other, a lot of infrastructure is of a similar age. All those pipes that now need to be replaced with see councils bidding against each other for the materials, machinery and labor to install. Without some strategic foresight, some of this infrastructure may end up being replaced when it should be abandoned?

Consider the leaky homes as a small sample of what may be coming. ~30k homes affected (I'm sure its a lot more). A double hit on national productivity and inflation. When a family paying for a built house that should last 50 years + with sensible maintenance, all of a sudden the family consumes 2 houses. One was torn down and another built. Looks good on GDP I'm sure, but productivity wise, that's a shocker. And the 2nd house that is built can only be a bump on the upside of inflation when materials and builders are locked up.

Not too sure if that gets you alongside how I'm looking at things or not.

by Yvil | 15th Aug 24, 3:38pm 1723693133

The RBNZ Household Expectations Survey was re-developed in the first quarter of 2022 and renamed to Tara-ā-Whare

Why don't we keep names of organisations, in a language that most people can understand?

by Nzdan | 15th Aug 24, 5:49pm 1723700997

It's one of the many ways we compensate Māori for banning the teaching of their language in schools. Even though it was prominent Māori themselves in 1877 that petitioned the Government of the day to amend the Native Schools Act.

One such petition in 1877 by Wi Te Hakiro and 336 others called for an amendment to the 1867 Native Schools Act which would require the teachers of a Native School to be ignorant of the Maori language and not permit the Maori language to be spoken at the school.

https://sites.google.com/site/treaty4dummies/home/maori-forbidden-at-sc…

by lt84 | 15th Aug 24, 7:54pm 1723708496

The govt’s woeful economic mismanagement has forced the RB to cut cut urgently 12 months before it said it would

Everything this govt does makes the wheels fall off