VIEW: NZIER Survey In Line With Westpac’s Q1 Rate Cut View

The quarterly NZIER survey of business opinion for Q2 released today showed both activity and inflation easing. While the outlook for the next 3 months remained negative, it improved to -10.4 from -12.3. Business confidence deteriorated to -35.4 from -24.9 though, while output price increases fell to 22.4 from 33.4. Westpac notes that the data is consistent with inflation falling below 3% by year end and the first RBNZ rate cut in February.

• Westpac observes the “inflation indicators have continued to head in the direction that the RBNZ would have hoped. A net 41% of firms reported cost increases over the last three months, down from 52% last quarter and a peak of 80% at the end of 2022. There were similar falls in firms’ past and expected pricing.”
• “These measures are consistent with inflation falling below 3% before the end of this year, though they’re still higher than what has historically been consistent with the 2% target. That direction of progress will be welcomed by the RBNZ. However, it doesn’t indicate that inflation is coming off any faster or slower than we or the RBNZ have been forecasting.”
• “Our view for some time has been that the RBNZ will begin reducing the OCR from February next year – much earlier than the RBNZ’s own projections of a start somewhere in Q3 next year. Today’s survey is in line with our view.”
• “The labour shortage has become a distant memory: workers have become much easier to find, and indeed on balance firms said that they were rapidly shedding workers in the last quarter.”