18 May 2016

Rise in inflation expectations

6:50 am on 18 May 2016

Inflation expectations for the next two years have risen off record lows - but only just.

Reserve Bank of New Zealand

Reserve Bank of New Zealand Photo: RNZ / Alexander Robertson

The latest Household Inflation Expectations survey, completed for the Reserve Bank, showed businesses expected inflation to edge up slightly to 1.64 percent over the next two years.

That was generally the time it took for Reserve Bank rate hikes or cuts to filter through to prices.

The latest reading was up from 1.63 in the last survey taken three months ago, which was the lowest since June 1994.

ASB chief economist Nick Tuffley said the Reserve Bank would be relieved that it didn't dip lower.

Interest rates cuts were still on the cards, but there was still a question mark over whether or not the central bank would cut rates in June, he said

"At this stage we think the bank will cut in June, but the risks are that they do wait a little bit longer," he said.

ASB is calling for rates to be cut in June, and then again in August.

"In our view all the risks around the inflation outlook are that it remains weaker for longer and the sooner the Reserve Bank cuts the better," he said.

Annual inflation for the March quarter is currently 0.4 percent.

The Reserve Bank has a target of keeping inflation between 1 and 3 percent.

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