KEY POINTS:
Inflation expectations in New Zealand for the next two years were unchanged in the first quarter, a central bank survey showed today, backing views that interest rates will remain on hold in the coming months.
The Reserve Bank of New Zealand's quarterly survey of expectations showed business managers forecast annual inflation to average 3 per cent over the coming year, unchanged from the previous survey in November.
Two-year inflation expectations were also steady at 2.7 per cent.
"It's still elevated and probably too high for the Reserve Bank's liking, but at least it's not drifting up," said Khoon Goh, economist at ANZ-National Bank.
"We're starting to see that activity has certainly taken a turn over the earlier part of this year and when there are expectations that activity is softening typically you don't see much pricing power."
The New Zealand dollar, which struck a 23-year post float high earlier today, fell around a quarter of cent to around US81c following the release of the data.
The RBNZ lifted interest rates four times last year to a record 8.25 per cent on concerns about growing inflation pressures.
Domestic demand has started to cool but the central bank has said it was likely to keep rates unchanged in the coming months because of persistent inflation concerns from higher oil and food prices.
Most of the 17 economists in a Reuters poll expect the RBNZ to hold rates until late this year or early 2009.
The survey of 71 business managers also showed respondents expect the consumer price index to rise 0.8 per cent in the quarter to the end of March, for an annual rate of 3.5 per cent.
Annual inflation jumped to 3.2 per cent in the December quarter on higher oil prices. The RBNZ is required to keep inflation between 1-3 per cent over the medium term.
- NZPA
