Inflationary pressures running hot - survey

By BRIAN FALLOW

The National Bank's August business confidence survey will do nothing to soothe the Reserve Bank's inflation concerns.

A net 32 per cent of firms say they intend to increase their prices, up from 30 per cent last month. This indicator has been climbing for six months.

Firms' inflation expectations also rose to 2.87 per cent, from 2.73 per cent last month.

"Pricing intentions are pointing to inflation touching 3 per cent, the top of the Reserve Bank's target range," National Bank chief economist John McDermott said.

He said the Reserve Bank's concern would be that despite its having lifted rates four times this year, these numbers were still heading in the wrong direction.

"Given their previous assessment of the strength of the economy, which seems to be confirmed by every new bit of economic data, they will be thinking these numbers need to stabilise before they can stop increasing interest rates."

The survey recorded small falls in firms' confidence about the overall business situation, in their views of their own activity, and in their hiring and investment intentions.

The key own-activity indicator fell from a net 29.5 per cent positive last month to a net 27.8 per cent.

McDermott said that was still a relatively upbeat assessment consistent with the economy growing about 3 per cent next year - rather higher than the bank's own forecasts.

But when asked about the economy's prospects rather than their own, firms were lugubrious, with a net 15 per cent expecting business conditions to worsen over the next year, against 13 per cent last month.