Inflation expectations have continued to fall, reinforcing indications that inflation is set to drop back within the RBNZ target band in very near future.
Inflation expectations
- One year ahead: 2.40% (Prev: 2.73%, down 33 points)
- Two years ahead: 2.03% (Prev: 2.33%, down 30 points)
- Five years ahead: 2.07% (Prev: 2.25%, down 18 points)
- Ten years ahead: 2.03% (Prev: 2.19%%, down 16 points)
Expectations for inflation over the next few years have continued to drop back in the RBNZ’s latest Survey of Expectations. That follows the fall in actual inflation in recent months.
Inflation expectations have fallen at all of the horizons the RBNZ monitors. Most notably, the closely watched measure of expected inflation in two-years’ time has dropped to 2% (down from 2.3% last quarter). Expectations for inflation two-years ahead are now below the average seen since 2002 (when we shifted to a 1 to 3% target range for inflation). Notably, this measure has not typically fallen to these sorts of lows except at times when actual inflation has fallen below 2%.
The importance of this survey in the RBNZ’s policy deliberations has fallen over time, with the RBNZ instead preferring to look at a range of different measures of inflation pressures.
Even so, today’s result will still be welcome news for the RBNZ, reinforcing other indications that inflation is set to drop back within the RBNZ’s target band in the very near future (we’re picking inflation will fall to 2.6% in the September quarter).
This reinforces our expectation the RBNZ will signal earlier rate cuts than previously assumed at their policy meeting next week – we’re forecasting OCR cuts will begin in October. Our full preview of the RBNZ’s August policy meeting is available here.
