"Capacity pressures are intense in Canterbury, but there is little pressure in the rest of the country," said NZIER principal economist Shamubeel Eaqub.
"Firms do not intend to raise prices much. Consumer price inflation will remain low," he said, predicting that the Reserve Bank of New Zealand will keep interest rates on hold for some time.
The NZIER survey results are consistent with annual growth of above 2 per cent for 2012.
NZIER said that the pickup in the economy is not yet flowing through to the labour market. New hiring remains subdued and labour is getting a little easier to find outside Canterbury.
It was surprising that there was not more competition for labour as the economy picked up, NZIER said.
"This part of the recovery remains absent," Eaqub said.
Expectations of domestic trading activity surged to plus 22 per cent from plus 9 per cent in the previous quarter.
Activity has increased across all industries but the strongest sector is building because of Canterbury. Manufacturing activity rebounded and merchants reported stronger retail spending. The service sector is gradually increasing sales.
There were too many risks in the global economy for the Reserve Bank to be proactive in raising interest rates, Eaqub said.
"It's a very nice finish to 2012," he said.
ASB Bank economist Daniel Smith said business confidence "improved markedly" during the last quarter of 2012, which corresponded to other indicators that point to greater activity levels towards the end of the year.
"The latest survey also suggests that the Canterbury rebuild is starting to materialise on something like the scale anticipated, with builders' reported activity and new orders picking up sharply."
Smith said that despite the pickup in activity and confidence, the survey's inflation indicators remain very subdued, pointing to continued soft inflation.
"Capacity constraints are building in Canterbury, but for now remain localised. We continue to expect that the OCR will remain on hold until December 2013," he said.
