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24 Feb 2015
RBNZ inflation expectations drop below 2%
FXStreet (Bali) - The Reserve Bank of New Zealand (RBNZ) Survey of Expectations, a New Zealand-wide quarterly survey of business managers and professionals, saw the headline print at 1.8% for Q1 vs 2.1% in Q4 2014.
Official release - RBNZ
One and two-year-ahead expectations of annual Consumers Price Index (CPI) inflation have again declined. The one-year series decreased from 1.59 to 1.11 percent on a mean basis. The median fell to 1.0 percent.
Respondents’ two-year-ahead inflation expectations decreased from 2.06 to 1.80 percent, a fall of 0.26 percentage points. However, the median remained at 2.0 percent. As recently as June 2014 the two-year series mean was 2.36 percent.
Short-term inflation expectations very subdued
Respondents are also asked what they believe quarterly CPI inflation will be for the current and next quarters. A quarterly percentage increase of just 0.04 percent is expected for the March 2015 quarter (0.40 percent last survey), and 0.32 percent for the June 2015 quarter. These expected quarterly increases imply annual inflation rates of 0.46 and 0.53 percent for the years to March and June 2015 respectively.
Easy monetary conditions are expected
Monetary conditions are currently perceived as being easy. In the last survey conditions were expected to tighten, however this quarter respondents expect easy conditions to continue throughout the year.
At the time the survey was completed the net percentage of respondents believing monetary conditions to be easier than neutral was 33 percent (compared to 27 percent last quarter). For June 2015 the net percentage figure moves to 41 percent. By the end of December 2015 easier than neutral monetary conditions are expected by a net 35 percent of respondents.
GDP growth expectations little changed
Respondents’ one and two-year-ahead expectations of real annual growth in Gross Domestic Product (GDP) are little-moved from last quarter. One-year expectations increased from 2.68 to 2.75 percent. Two-year growth expectations have been fairly stable over the last year, but the last few quarters saw falls. However, this quarter the two-year series held at 2.5 percent.
The latest Statistics New Zealand data indicate real production-based GDP increased by 3.2 percent between September 2013 and September 2014 (annual percentage change).
Quarterly growth of 0.8 percent is expected by respondents for the December 2014 quarter and 0.7 percent for March 2015.
One-year hourly earnings growth expectations decline
One-year-ahead hourly earnings growth expectations slid from 2.47 to 2.27 percent. At the two-year horizon, the expectation remains at 2.60 percent.
The unemployment rate is expected to fall
One and two-year expectations of the unemployment rate are little-moved. One and two-year expectations inched up 0.1 percentage points to 5.4 in the case of the one-year ahead question and to 5.3 percent for the two-year. These figures compare with the latest official Statistics New Zealand figure of 5.7 percent published for the December 2014 quarter.
Slightly higher short-term interest rates are expected.
The 90-day bank bill rate is expected to be 3.62 percent at the end of March 2015, which is close to the rate prevailing when the survey was taken. Nine months later the 90-day rate is expected to have edged up around 5 basis points to 3.67.
10-year government security yields are expected to be around 3.69 percent at the end of December 2015, implying a positive yield gap of just 0.02 percentage points.
Little movement in NZ dollar exchange rate is expected
The US dollar exchange rate is expected to have barely moved by the end of June 2015, to be around 0.73, and to be just a cent lower by the end of December 2015. When the survey was taken the rate was around 0.74. An Australian dollar exchange rate of 0.93 is predicted for the NZ dollar at the end of December 2015, a few cents lower than where the rate was at the time the survey was completed.
Official release - RBNZ
One and two-year-ahead expectations of annual Consumers Price Index (CPI) inflation have again declined. The one-year series decreased from 1.59 to 1.11 percent on a mean basis. The median fell to 1.0 percent.
Respondents’ two-year-ahead inflation expectations decreased from 2.06 to 1.80 percent, a fall of 0.26 percentage points. However, the median remained at 2.0 percent. As recently as June 2014 the two-year series mean was 2.36 percent.
Short-term inflation expectations very subdued
Respondents are also asked what they believe quarterly CPI inflation will be for the current and next quarters. A quarterly percentage increase of just 0.04 percent is expected for the March 2015 quarter (0.40 percent last survey), and 0.32 percent for the June 2015 quarter. These expected quarterly increases imply annual inflation rates of 0.46 and 0.53 percent for the years to March and June 2015 respectively.
Easy monetary conditions are expected
Monetary conditions are currently perceived as being easy. In the last survey conditions were expected to tighten, however this quarter respondents expect easy conditions to continue throughout the year.
At the time the survey was completed the net percentage of respondents believing monetary conditions to be easier than neutral was 33 percent (compared to 27 percent last quarter). For June 2015 the net percentage figure moves to 41 percent. By the end of December 2015 easier than neutral monetary conditions are expected by a net 35 percent of respondents.
GDP growth expectations little changed
Respondents’ one and two-year-ahead expectations of real annual growth in Gross Domestic Product (GDP) are little-moved from last quarter. One-year expectations increased from 2.68 to 2.75 percent. Two-year growth expectations have been fairly stable over the last year, but the last few quarters saw falls. However, this quarter the two-year series held at 2.5 percent.
The latest Statistics New Zealand data indicate real production-based GDP increased by 3.2 percent between September 2013 and September 2014 (annual percentage change).
Quarterly growth of 0.8 percent is expected by respondents for the December 2014 quarter and 0.7 percent for March 2015.
One-year hourly earnings growth expectations decline
One-year-ahead hourly earnings growth expectations slid from 2.47 to 2.27 percent. At the two-year horizon, the expectation remains at 2.60 percent.
The unemployment rate is expected to fall
One and two-year expectations of the unemployment rate are little-moved. One and two-year expectations inched up 0.1 percentage points to 5.4 in the case of the one-year ahead question and to 5.3 percent for the two-year. These figures compare with the latest official Statistics New Zealand figure of 5.7 percent published for the December 2014 quarter.
Slightly higher short-term interest rates are expected.
The 90-day bank bill rate is expected to be 3.62 percent at the end of March 2015, which is close to the rate prevailing when the survey was taken. Nine months later the 90-day rate is expected to have edged up around 5 basis points to 3.67.
10-year government security yields are expected to be around 3.69 percent at the end of December 2015, implying a positive yield gap of just 0.02 percentage points.
Little movement in NZ dollar exchange rate is expected
The US dollar exchange rate is expected to have barely moved by the end of June 2015, to be around 0.73, and to be just a cent lower by the end of December 2015. When the survey was taken the rate was around 0.74. An Australian dollar exchange rate of 0.93 is predicted for the NZ dollar at the end of December 2015, a few cents lower than where the rate was at the time the survey was completed.