Inflation Expectations Fall in New Zealand

Key Findings

• Inflation expectations have fallen for all measures.
• Two-year inflation expectations are seen as the timeframe when RBNZ policy action will filter through.
• Five-year-ahead and ten-year-ahead inflation expectations have decreased to 207 and 203 respectively.

RBNZ Survey of Expectations

The RBNZ Survey of Expectations asks respondents questions relating to perceptions and expectations on: * Inflation * Output * Employment * Interest rates

Influential Survey Shows Further Falls

An influential survey conducted for the Reserve Bank RBNZ shows further significant falls in the inflation expectations of businesses and households.

Key Findings

* Expectations for inflation over the next 12 months decreased by 38 basis points from 3.60% to 3.22% - the lowest level since June 2021. * Two-year inflation expectations fell by 16 points to 2.19%. * Five-year-ahead and ten-year-ahead inflation expectations decreased to 2.07% and 2.03% respectively.

These results suggest that businesses and households are becoming more confident that inflation will fall back within the RBNZ's target range of 1-3% over the medium term.

Impact on RBNZ Policy

The RBNZ is likely to take these results into account when making its next monetary policy decision on 22 March 2023. The RBNZ has been raising interest rates in an effort to curb inflation. However, the recent falls in inflation expectations may give the RBNZ some room to pause or even cut rates in the near future.