20 Aug 2014

Survey 'reduces rate hike' chance

9:14 am on 20 August 2014

An economist says the latest Reserve Bank survey of inflation expectations will lessen the need for further interest rate increases.

Reserve Bank building.

Photo: RNZ

According to the central bank's August poll, businesses anticipate inflation in two years' time will be 2.23 percent - a fall of 0.13 percentage points.

Over one year, they expect a decrease from 2.08 to 1.96 percent.

Westpac chief economist Dominick Stephens said the information is critical to the Reserve Bank's decision-making.

"If people are expecting less inflation then they're happy to take smaller cost of living increases so far as their wage negotiations are concerned, perhaps firms are happy with smaller price increases. Inflation expectations can actually become self-fulfilling; when they're lower the Reserve Bank's job is easier.

"The Reserve Bank will just have a little less need to hike the OCR over the next couple of years than otherwise."

Eighty-two businesses responded to the quarterly survey.