Petrol price puts more cheer in the air

Falling petrol prices have cheered up businesspeople.

The National Bank's monthly business outlook survey shows confidence about the general economic situation at its highest level since March last year. A net 29 per cent of respondents still expect conditions to worsen, but that is an improvement from a net 34 per cent in August.

A net 15 per cent of firms expect their own situation to improve, up from a net 6 per cent last month.

Such a level pointed to economic growth of around 1.5 per cent, mid-way between a hard and a soft landing, said bank chief economist Cameron Bagrie.

But next month's survey would reflect not only further petrol price falls but also the Reserve Bank's warning that it might raise interest rates again and the rising exchange rate.

Expectations for exports, profits and investment improved, but hiring intentions have softened.

There is good news for inflation, with the proportion of firms planning to increase prices falling to a net 28 per cent, a six-month low.

Expectations of inflation have eased from 3.5 to 3.4 per cent, still outside the Reserve Bank's target band but moving in the right direction

"While the easing in petrol prices is welcome, inflation pressure is more than a petrol-price phenomenon," Bagrie said.

Lower petrol prices reduced inflation in the short term but also added impetus to growth and inflation.

It would be premature to predict the benign combination of a soft landing, gradually receding inflation and an easing housing market, Bagrie said.