Retailers say they are feeling the squeeze. Photo / Mike Scott
After a brief outbreak of optimism last month, business confidence resumed its downward slide in October.
The ANZ Business Outlook survey shows confidence and expectations around firms' own activity both fell.
Both measures rose slightly in September.
"Most forward-looking activity indicators slipped a little," said senior economist Miles Workman.
"Inflation pressures remain intense. Pricing intentions are gradually easing but are not yet indicating a meaningful fall in inflation."
Responses received after the unexpectedly strong CPI data were weaker on average.
"Economy-wide inflation pressures are still very strong. Pricing intentions and costs are falling – but they are still far too high," Workman said.
Firms in the retail sector expressed the highest expectation that they would have to raise prices in the next three months.
But construction sector pricing intentions had fallen the most since peaking early in the year.
"We also ask firms their expected costs in three months' time relative to today," Workman said.
"Expected cost increases bounced back up this month in every sector except manufacturing, perhaps reflecting the weaker New Zealand dollar."
Costs were very high across the board, he said.
"On average, firms are still expecting margin compression, in that costs are expected to go up around 6.2 per cent over the next three months, but prices by only 4.3 per cent.
Expectations for wage settlements in the next 12 months increased 5.6 per cent.
"The labour market remains exceptionally tight," Workman said.
"It's a stressful time for businesses. Costs are still rising rapidly, and passing these costs on has become more difficult as customers become more price sensitive."
Many firms had been chronically understaffed for a long period and the strain was telling, he said.
"And economists are out there warning that interest rates are going to keep going higher [and house prices likely lower] until the New Zealand economy goes into recession or something close to it."
"If the global economy doesn't side-swipe us first, that is."
With all that going on, it was no wonder headline business confidence remained subdued, he said.
"The economic outlook is certainly murky, but the New Zealand economy has a lot going for it. Debt is higher, but nowhere near the worrying levels other economies are struggling under.
"We're relatively insulated from the energy cost implications of Russia's invasion of Ukraine. Our primary export base is food, and when it comes down to it, people have got to eat."
Overall the economy was still surprising economists with its resilience, he said.
"It's a rougher path ahead, but the country is still moving forward."
Industrial projects dominate new supply, the study found, comprising 65% of new stock.