'Weak' economy easing inflation, as Reserve Bank hoped

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ANZ chief economist Sharon Zollner said the economy was “clearly weak”, exactly what the Reserve Bank wanted.
Photo: 123rf

Business confidence has fallen for the fifth consecutive month, but firms’ pricing intentions are continuing to ease.

ANZ’s latest Business Outlook Survey showed headline confidence fell five points in June to a net 6 percent, while their own activity outlook remained weak but was unchanged.

In welcome news in the fight against inflation, pricing intentions were down, with inflation expectations also easing slightly from 3.6 percent to 3.5 percent.

An earlier survey showed consumers’ inflation expectations rising, but ANZ said the trend was still down.

ANZ chief economist Sharon Zollner said the economy was “clearly weak”, exactly what the Reserve Bank (RBNZ) wanted as it tried to cool demand in order to bring down inflation.

“Both cost expectations and pricing intentions have now fallen off the plateau they were stuck on for eight to nine months. Inflation expectations also continue to steadily decline,” Zollner said.

“Firms’ numerical estimates of where their own selling prices will be in three months’ time also dropped out of the 1.8-1.9 percent level it has been stuck on for four months, with a broad 0.6 percentage point fall to 1.2 percent.”

Sharon Zollner.
Photo: RNZ / DOM THOMAS

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

“Low turnover is a particularly weighty issue for the retail and manufacturing sectors. The agriculture sector is by far the most concerned about non-wage costs and interest rates. The turnaround in labour shortages is evident across all sectors.”

Zollner said the RBNZ’s efforts to bring down inflation were working.

“The economy is clearly weak, as the RBNZ intended, but more than that, we are finally seeing renewed meaningful progress on bringing inflation pressures down.

“There is still a long way to go, but we are optimistic that the RBNZ will be in a position to cut the official cash rate considerably earlier than August next year, as they currently expect.”