ANZ Business Outlook: Confidence rebounds, inflation pressure 'off the chart'

Residential construction sector losing confidence as costs rise. Photo / Jason Oxenham

Business confidence rebounded in March, although inflation pressure is continuing to build, according to the latest ANZ Business Outlook survey.

The March survey "saw most activity indicators bounce back a little, perhaps as the worst fears about the impact of Omicron waned," ANZ chief economist Sharon Zollner said.

"Inflation pressures continued to lift, with the commodity price impact of Russia's invasion of Ukraine giving pressures fresh impetus."

Inflation expectations rose to a new record high of 5.5 per cent and pricing intentions took yet another meaningful leg higher to a net 81 per cent, Zollner said.

The latter suggested CPI inflation was "moon-bound", she said. "Measures are simply off the charts."

"A remarkable net 96 per cent of firms report that they expect higher costs," Zollner said.

"[You] can't get much more broad-based inflation pressure than that."

All sectors were anticipating more margin pressure ahead.

The sector experiencing the highest cost pressures was agriculture, but it also had the lowest pricing intentions, reflecting a lack of pricing power, Zollner said.

The construction sector had the second-highest expected average costs, and the highest pricing intentions.

After agriculture, the services sectors were looking at the biggest deterioration in profit margins, with the third-highest cost increase expectations but the second-lowest pricing intentions.

Overall confidence in the general business outlook recovered 10 points compared to February.

Businesses' confidence in the outlook for their own activity lifted 5 points.

Both remain lower than at the end of last year.

"Activity indicators generally lifted slightly across the board, with the marked exception of residential building intentions, which tanked," Zollner said.

"The fall in residential construction intentions was large, even accounting for the usual volatility in the series. This is consistent with the sharp turn evident in house sales data."

The fall in residential construction industry confidence comes as StatsNZ reports building consents have been issued at another record high.

The number of new homes consented in the year ended February 2022 reached a new annual record of 49,733, up 25 per cent compared with the same period in 2021, Stats NZ said today.

Meanwhile, the ANZ outlook survey found labour shortages were weighing on most sectors.

Finding skilled labour remained the biggest problem for firms, though it wasn't getting worse, while non-wage cost inflation and high rates of pay were growing as problems.

Traditional recession-type problems such as cashflow/debtors and low turnover remained well down the list.

With regards to investment decisions, interest rates were not yet a significant factor for either firms intending to invest, or those not.

Concern about the domestic economic outlook was rising, and was the top factor constraining investment by quite some way, Zollner said.

ANZ Bank chief economist Sharon Zollner. Photo / Dean Purcell

Overall, the survey results did not make for a "very pleasant mix", she said.

"The near-term growth outlook is clouded. But with inflation pressures now so extreme, and the RBNZ's inflation-targeting credibility on the line," she said.

"It's full steam ahead for rate hikes."

She reiterated ANZ's earlier call, forecasting 50 basis point hikes for the Official Cash Rate (OCR) in both April and May.