The latest RBNZ survey of inflation expectations showed expectations remain well-anchored at the RBNZ’S 2% sweet spot. All measures, bar the one-year-ahead measure, edged closer towards 2%. It’s great news and an incredibly important development. Expectations are key in price setting behaviour and therefore the inflation outlook. The higher our inflation expectations are, the higher we’ll push up prices, including wages. As history shows, expectations of inflation follow actual inflation and can be self-reinforcing.
So, the drop across expected measures were exactly what we and the RBNZ want to see. The all-important two-year ahead measure dropped 6bps to 2.06%. While further out, inflation expectations for the 5-year-ahead measure fell 11bps to 2.13%. Similarly, the 10-year ahead measure dropped 12bps to 2.07%.
Recent downward pressure on the NZD, along with higher petrol prices and ‘Trumpflation’ worries were likely behind the 10bps increase in the one-year ahead measure to 2.15%. Still, all measures remain well within the RBNZ’S comfort zone and confirms the stabilisation in inflation.
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