New Zealand posts first dip in inflation expectations in 2 years

NEW ZEALAND recorded its first drop in 2-year inflation expectations since mid-2020, adding to signs the Reserve Bank's aggressive policy tightening is beginning to cool the economy.

Expectations fell to 3.07 per cent in the third quarter from 3.29 per cent in the prior 3 months, the RBNZ said in a quarterly Survey of Business Expectations released on Monday (Aug 8) in Wellington. The second-quarter reading was the highest since early 1991 and had been the eighth straight gain.

The central bank is forecast to deliver a fourth consecutive half-percentage point hike at next week's meeting, taking the Official Cash Rate to 3 per cent. The currency fell after today's release as investors bet that easing inflation expectations may prompt policymakers to adopt a slower pace of rate increases in coming quarters.

The kiwi dollar fell to 62.4 US cents at 3.18 pm in Wellington from 62.6 US cents before the report.

The RBNZ has expressed concern at rising inflation expectations, which have been fanned by headline inflation soaring to a 32-year-high of 7.3 per cent in the second quarter. The central bank is required to target consumer-price growth in a 1-3 per cent band.

Other inflation expectations gauges were little changed. The 1-year ahead view eased to 4.86 per cent from 4.88 per cent, while the 10-year ahead outlook was 2.13 per cent versus 2.11 per cent 3 months earlier. Five-year ahead expectations fell to 2.33 per cent from 2.42 per cent. BLOOMBERG