The Reserve Bank of New Zealand (RBNZ) recently published significant results from its quarterly Business Inflation Expectations survey. This survey provides a rare and timely glimpse into the future of inflation across the country. We polled business operators. The main purpose is to assess their input price inflation expectations for the next 24 months, in their own products. The third quarter results are in and they show a significant jump – inflation expectations of 2.8%. This information is particularly useful for New Zealand Dollar (NZD) traders. Most importantly, it can directly affect their currency valuation and actively inform their trading strategies.
The RBNZ’s commitment to maintaining price stability forms the core of the RBNZ’s monetary policy. The purpose of the bank is to maintain long-term inflation within the range of 1% to 3%. By analyzing business expectations on inflation, the RBNZ can make informed decisions about interest rates, ultimately impacting employment levels and economic growth. The survey is set against the backdrop of acute inflation expectations among New Zealand’s businesses. In turn, it provides a broad indication of where they expect inflation to be by the end of 2027.
Quarterly Survey Details
The RBNZ’s Business Inflation Expectations survey is done quarterly. This unique survey collects information from every type of business operator – single location, chains, public, private, etc. This survey examines those firms’ expectations for price changes on their own products. This provides the RBNZ with a better ability to assess where inflationary pressures may be occurring in the economy.
The results from this survey are crucial, as they reflect the sentiment of business leaders who are closely monitoring economic conditions. The acute jump to 2.8% in the most recent figures foretells the increasing anxiety over escalating expenses. This kind of sentiment can have further ramifications, affecting consumer sentiment and policy decisions made by the RBNZ itself.
“When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” – Reserve Bank of New Zealand (RBNZ)
Implications for NZD Traders
For those investing in the New Zealand Dollar (NZD), the outcome of the Business Inflation Expectations survey is particularly impactful. Meanwhile, inflation expectations are the highest they have been for decades. Traders will have to closely watch how this move may influence the course of monetary policy and subsequently the NZD/USD exchange rate.
An increase in inflation expectations would now require the RBNZ to move interest rates in the other direction. Higher interest rates would normally cause a currency to appreciate, as they draw foreign investment looking for higher returns. On the flip side, if inflation is allowed to run free, that may create significant currency market volatility. Traders watch these surveys very closely. They’re looking for a sense of what New Zealand businesses expect inflation to land at in the short-to-medium term.
The Role of CPI and Price Stability
The Consumer Price Index (CPI) is the most important measure of inflation in New Zealand. Policymakers and market participants alike watch it closely as an indicator of underlying economic conditions. The RBNZ utilizes CPI data in conjunction with findings from the Business Inflation Expectations survey to gauge overall economic health and price stability.
Price stability is a prerequisite for a healthy economy and for achieving the goals of sustainable growth and full employment. RBNZ’s strategy is to meet the objectives of its monetary policy and maintain a forward-looking approach to address future inflation pressures. The Business Inflation Expectations survey is a valuable treasure trove of information. These findings inform the RBNZ’s policy decisions and ensure that New Zealanders experience stable economic conditions.