Businesses and households expect subdued inflation
Subdued inflation expectations among both businesses and households reinforce perceptions interest rates won't be going up any time soon.
Tuesday, August 21st 2012, 4:07PM
by Jenny Ruth
Business expect inflation in two years time will be 2.32%, down from 2.41% three months ago, while economic growth is also expected to be lower than previously thought, according to the Reserve Bank's latest survey.
"Inflation expectations at the two-year ahead level are at a three-year low," says Darren Gibbs, an economist at Deutsche Bank.
Gibbs adds that households' inflation expectations one-year ahead at 3% are also at their lowest level since 1999. "Maybe households are finally convinced low inflation is here to stay," he says.
The central bank is also likely to find comfort in that households expectations of house price inflation in a year's time are also at 3% and unchanged from the May survey.
Dominick Stephens, chief economist at Westpac, says the survey results were exactly what he was expecting. "The economy's been very weak for a good four-and-a-half years or so now and inflation expectations are still above the middle of the Reserve Bank's inflation band (zero to 3%)," he says.
Still, "the Reserve Bank will be fairly comfortable about keeping the OCR (official cash rate) unchanged for the better part of another year," Stephens says.
Westpac is forecasting the central bank will keep the OCR at its current record low of 2.5% through until July next year.
Jane Turner, an economist at ASB Bank, which is picking the OCR to rise next June, says she expects inflation pressures will eventually pick up over 2013/2014 "as offshore concerns fade and the economic recovery gains momentum - particularly once Canterbury rebuild activity starts to lift."
Comments from our readers
No comments yet
Add your comment:
Compare Mortgage Rates
Find a Mortgage Broker
The OCR ain't going anywhere
The new Reserve Bank governor, Graeme Wheeler, predicts that the official cash rate won't by going anywhere until 2014.
This is clear from the 90-day bank bill forecast graph in the December Monetary Policy Statement. It shows clearly how over the past year forecast increases kept getting pushed down each quarter.
A year ago the bank was predicting the 90-day bill rate would be up at 4.00% by March 2014. That forecast was wound back to 3.3% in March, 3.2% three months later and is now down at 2.8%.
The good news for borrowers is that, asssuming things pan out as forecast, then home loan rates aren't likely to be going up any time soon either.