New Zealand Businesses Upbeat Despite Fuel Price Surge

New Zealand businesses are feeling more optimistic despite rising fuel costs, according to the latest survey by the New Zealand Institute of Economic Research (NZIER). A net 43% of firms now expect business conditions to improve, a significant jump from just 8% in the previous quarter. This shift in sentiment comes even as fuel prices surged in September due to renewed tensions between the US and Iran, highlighting how quickly energy shocks can impact the economy.

The survey, conducted between September 9th and 28th, also revealed that capacity utilization inched up to 91.0% from 90.8%. This high level of activity leaves businesses with less room to absorb cost increases, making it more likely that higher fuel prices will be passed on to consumers rather than absorbed by profit margins.

NZIER economist Christina Leung noted that while the immediate drag on confidence appears muted, there is a risk that higher fuel costs could contribute to broader inflation. This could influence the central bank's decisions, even though Leung’s team does not anticipate further interest rate hikes this year. The cash rate was recently raised to 2.75% in September.

For households, particularly those with floating mortgages or those refixing soon, the current economic conditions mean they remain more exposed to inflation surprises. The central bank’s focus on controlling persistent price rises adds another layer of caution to the financial landscape.