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NEW ZEALAND: Inflation Expectations Around Band Mid-Point

NEW ZEALAND
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Q4 inflation expectations from the RBNZ’s business survey showed that they remain well anchored close to the mid-point of the target band. 1-year out they moderated to 2.05% from 2.4% while 2-years out they were slightly higher at 2.1% from 2.0%. 1-year out has a 90% correlation with headline inflation and 78% with core, so the RBNZ should be assured that the former will stay in the band and that the latter should return soon. Another 50bp of easing is likely at its November 27 meeting.

  • RBNZ research found that household 1-year ahead inflation expectations had the best relationship with core. Our estimated correlation is higher for household than for business expectations at 85% versus 78%. Q4 household inflation expectations print on November 19.
  • The business survey also includes the “perception of monetary conditions”, while they are expected to be less tight at the end of 2024 than they were at end-2023, they are still seen as tighter than end-2022. But by the end of 2025, they are perceived to be stimulatory. 

NZ CPI vs RBNZ 1-year inflation expectations y/y%

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Q4 inflation expectations from the RBNZ’s business survey showed that they remain well anchored close to the mid-point of the target band. 1-year out they moderated to 2.05% from 2.4% while 2-years out they were slightly higher at 2.1% from 2.0%. 1-year out has a 90% correlation with headline inflation and 78% with core, so the RBNZ should be assured that the former will stay in the band and that the latter should return soon. Another 50bp of easing is likely at its November 27 meeting.

  • RBNZ research found that household 1-year ahead inflation expectations had the best relationship with core. Our estimated correlation is higher for household than for business expectations at 85% versus 78%. Q4 household inflation expectations print on November 19.
  • The business survey also includes the “perception of monetary conditions”, while they are expected to be less tight at the end of 2024 than they were at end-2023, they are still seen as tighter than end-2022. But by the end of 2025, they are perceived to be stimulatory. 

NZ CPI vs RBNZ 1-year inflation expectations y/y%

Keep reading...Show less