RBNZ Business Survey Paints Cautious Inflation Expectations Picture

The Reserve Bank of New Zealand's (RBNZ) business survey has shown that two-year-ahead inflation expectations are at 2.55%. This reading sits within the 1-3% target band but above the midpoint, a level that the RBNZ has considered tolerable in previous cycles but not yet comfortable.

The bank has historically placed more weight on this survey than others when assessing whether inflation expectations remain anchored. The two-year-ahead business inflation expectation print is seen as a key gauge of expectations, and readings above the midpoint have previously reduced the priced odds of near-term cuts.

On the other hand, readings closer to 2% have done the reverse, increasing the likelihood of easing measures. It's worth noting that this survey differs from the household series, which tends to run higher and carries less policy weight.