KEY POINTS:
Inflation expectations have fallen sharply, according to a Reserve Bank of NZ survey of business managers which also points to a significant decline in interest rates.
Consumers price index (CPI) inflation is expected to be 2.8 per cent on average in a year's time, 0.8 per cent lower than in the previous quarterly survey.
Inflation expectations have also fallen for two years' time, to an average of 2.7 per cent compared with 3 per cent in the September survey.
Annual inflation hit 5.1 per cent in the September quarter, its highest rate in 18 years and well above the Reserve Bank's target of 1-3 per cent over the medium term.
The survey - conducted amid a world economic crisis which is putting the brakes on the domestic and global economy - also pointed to lower official interest rates.
The 90-day bank bill rate is expected to be 6 per cent at the end of December, about 40 basis points lower than at the time of the survey, falling to 5.2 per cent by September 2009.
That indicated expectations of further reductions in the Official Cash Rate, which is currently 6.5 per cent.
The Reserve Bank is expected to cut the OCR by at least 1 percentage point on December 4 to stimulate growth in a slowing economy.
Those surveyed believed, on average, that the unemployment rate would jump to 5.5 per cent by September, and to 5.7 per cent a year later. The current unemployment rate is 4.2 per cent.
The exchange rate was expected to be at US55c at the end of March 2009. Against the Australian dollar, the kiwi was expected to hit A82c.
The survey was conducted on November 12 and 13 by the Nielsen Company.
- NZPA
