Actual inflation as measured by the Consumers Price Index (CPI) has dropped to 2.2% - but the households of New Zealand are having difficulty believing the inflation monster has been beaten.
According to the latest quarterly Household Expectations Survey for the Reserve Bank (RBNZ), kiwi households see inflation (mean measure) at 4.1% in a year's time.
That's unchanged from the previous quarter's survey - even though the latest actual inflation figures showed inflation dropping to 2.2% for the September quarter, from 3.3% as of June. It means that inflation is now back within the targeted 1% to 3% range for the first time since mid-2021.
Details of the survey and its methodology are shown at bottom of article.
These surveys have shown a bit of a history of households estimating inflation to be higher than the official figures tell us, so, perhaps these results are no surprise.
But the RBNZ would have wanted to see the expectations at least coming down in line with the way actual inflation has.
Perhaps more disconcertingly for the RBNZ is the fact that the mean two-year-ahead annual inflation expectation increased from 3.1% to 3.7% this quarter. So, households reckon the outlook for inflation has actually worsened in the past quarter and see it being well outside the 1%-3% target range in two years' time.
Interestingly, also, households expect 5.6% average growth in their earnings in one year’s time, unchanged from last quarter.
According to Statistics NZ's labour market figures for the September quarter, private sector average ordinary time hourly pay increased just 3.2% in the year to September. So, quite a disparity there.
The mean five-year-ahead annual inflation expectation of households remained unchanged at 3.4%.
These results in the household survey follow on from the recent RBNZ Survey of Expectations, featuring the views of business leaders and professional forecasters. It too showed an increase in the expectations of future inflation.
Why this is important for the RBNZ is that expectations of higher future inflation can become self-fulfilling. That's why one of the key battles in controlling actual inflation is to bring down inflation expectations.
As would be the case with the Survey of Expectations' results, the higher inflation expectations in the household survey aren't likely to alarm the RBNZ, given that the rises are not huge - but the results may well inject more caution into the central bank's thinking.
And that could have some influence on the speed at which the RBNZ cuts the Official Cash Rate - bearing in mind that it is widely expected to cut the OCR by at least another 50 basis points in the next review on November 27. The OCR currently stands at 4.75% having been reduced from 5.5% since August.
The household survey also asks about difficulty in meeting mortgage and rent payments and perceptions of how easily they would be able to find new jobs.
The latest results didn't appear to indicate any alarming changes in perceptions of being able to meet payments. But households are gradually getting less optimistic about chances of being able to get a new job if they need to try to find one.
The RBNZ say on average, households reported a 12.9% chance of not making a mortgage payment in the next 3 months (13.9% previous quarter). Households reported a 17.5% chance of not making a rent payment in the next 3 months (17.3% previous quarter).
Households continued to expect increased difficulty in finding a new job in the next three months. The expected chance of finding a new job has declined for three consecutive quarters since March 2024. On average, respondents believed there was a 42.3% chance they would find a new job in the next three months if they lost their job (43.8% previous quarter).
The mean one-year-ahead house price inflation expectation increased from 1.7% to 2.2% this quarter.
The RBNZ Household Expectations Survey was re-developed in 2022 Q1 and renamed to Tara-ā-Whare - Household Expectations Survey. The data for this report was collected by Research NZ on behalf of RBNZ.
Fieldwork for this survey was conducted between October 16 and 23, 2024. The sample size for this quarter’s survey was 1,002 and has a margin of error of +/-3.1% for a 95% confidence interval for a 50% figure. 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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