25 Feb 2015

Inflation expectations have slumped

11:00 am on 25 February 2015

The Reserve Bank is under further pressure to cut the Official Cash rate after its latest survey found inflation expectations have slumped.

Reserve Bank building in Wellington.

Reserve Bank building in Wellington. Photo: PHOTO NZ

Its quarterly poll shows businesses expect inflation will be 1.8 percent in two years time, compared with 2.06 percent in the previous period.

The central bank pays particular attention to the two-year figures as a gauge of inflation pressures.

The one-year-ahead inflation expectation fell to 1.1 percent from 1.59 percent.

The survey also indicated that the Reserve Bank's monetary policy will continue through the rest of the year, with little change in economic growth.

Meanwhile, the labour market is expected to see a continued fall in earnings expectations over the year, while the unemployment rate is expected to decline.

The currency is expected to be little changed over the year, although short-term interest rates are expected to be slightly higher.

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