VIEW: Westpac: Inflation Expectations Will Worry Bank

Westpac note that “the strong increase in today’s inflation expectations survey will no doubt be a worrying sign for the central bank. Interest rates have been on the rise for over a year now. However, underlying inflation is not showing signs of easing. And now, with inflation expectations pushing higher, there’s a risk that the inflation cycle could be even more protracted. That’s because expectations are a key input into how businesses adjust wages and prices, and their creep higher signals ongoing price pressures over the year ahead. We’re forecasting a jumbo-sized 75bp rise at the RBNZ’s next policy meeting on 23 November. Today’s strong result means that sort of extraordinary rate rise is even more likely.”