RBNZ inflation expectations little changed in December quarter, unlikely to deter RBNZ rate cut

The Reserve Bank of New Zealand (RBNZ) published its latest inflation expectations report for the December quarter which showed inflation expectations have been fairly stable over the last few quarters.

The two-year ahead measure nudged up from 1.65 percent to 1.68 percent. Expectations for one year ahead – less crucial to the RBNZ’s policy horizon – also rose slightly from 1.26 percent to 1.29 percent.

The Reserve Bank has eased monetary policy repeatedly over the past year in order to stimulate inflation. In September, policymakers strongly hinted at the prospect of additional cuts. The RBNZ had highlighted a decline in inflation expectations as a key risk.

Today’s result which show inflation expectations have been fairly stable over the last few quarters, suggesting that businesses are aware that the low headline inflation rate is partly due to temporary factors. RBNZ is meeting next week (10 November), and today's data is something to cheer the RBNZ but is unlikely to be a factor arguing against a rate cut.

"Expectations remain below what would be consistent with the inflation target midpoint of 2%. This suggests that the RBNZ still has some work to do to reassert the credibility of its inflation target. Recent RBNZ comments have strongly hinted at another OCR cut at next Thursday's Monetary Policy Statement, and today’s result will not be enough to dissuade them," said Westpac in a report to clients.