RBNZ Inflation Expectations Survey Set to Shape NZD Pricing

The Reserve Bank of New Zealand (RBNZ) is set to release its Q3 Survey of Inflation Expectations on Thursday, and two major banks are offering differing predictions. Westpac expects another rise in one and two-year-ahead expectations, citing recent swings in oil prices and inflation climbing back to 4.1 percent.

Westpac believes longer-horizon expectations will remain stable due to the RBNZ's tightening cycle already underway. In contrast, ASB anticipates a broadly easing set of readings, pointing to retail fuel prices well off their mid-April peak and softer signals from higher-frequency pricing and expectations surveys.

ASB does flag upside risk to the Q3 print from the elevated Q2 headline inflation figure, warning its models suggest medium and longer-term expectations could drift higher. The bank expects the RBNZ to continue affirming its inflation-fighting credentials with steady 25 basis point hikes, taking the Official Cash Rate to 3.25 percent by year end.

However, ASB notes that the OCR could peak lower if spare capacity dampens wage and pricing pressure, or higher if inflation expectations decouple from the RBNZ's 1 to 3 percent target band. The survey's two-year-ahead measure last printed at around 2.5 percent, and how far it moves will shape near-term pricing of the tightening cycle.