‘Weak’ economy will ease inflation, as Reserve Bank hopes – economists

ANZ chief economist Sharon Zollner said there was “clear weakness” in the economy, which was exactly what ANZ wanted.
photo: 123 RF

Business confidence has fallen for five consecutive months, but companies’ pricing intentions continue to weaken.

ANZ Bank’s latest business outlook survey The headline confidence index fell a net 5 points to 6% in June, while its own activity outlook remained weak but unchanged.

In the fight against inflation, the good news is that price intentions fell and inflation expectations also fell slightly from 3.6% to 3.5%.

An earlier survey showed consumers’ inflation expectations rising, but ANZ Bank said The trend is still down.

ANZ chief economist Sharon Zollner said there was “clear weakness” in the economy, which was exactly what the Reserve Bank of New Zealand (RBNZ) wanted as it tried to curb demand to bring down inflation.

“Both cost expectations and pricing intentions have now retreated from levels that had been stable for eight or nine months. Inflation expectations also continue to decline steadily,” Zollner said.

“Companies’ numerical forecasts for their own sales prices in the next three months also fell 0.6 percentage points to 1.2% from the 1.8-1.9% level that had been maintained for four months.”

Sharon Zoellner.
photo: RADIO NEW ZEALAND/DOM THOMAS

ANZ said businesses were concerned about inflation, interest rates and low turnover.

“Low turnover is a particularly acute problem for the retail and manufacturing sectors. The agricultural sector is most concerned about non-wage costs and interest rates. The shift to labor shortages is evident across all industries.”

Zollner said the Reserve Bank of New Zealand’s efforts to reduce inflation were paying off.

“As the RBNZ expected, the economy is clearly softening, but more importantly, we are finally seeing new meaningful progress in reducing inflationary pressures.

“While there is still a long way to go, we are optimistic that the RBNZ will be able to cut the official cash rate as significantly as they currently expect by August next year.”