The item of note is the Reserve Bank of New Zealand’s quarterly Survey of Inflation Expectations. This is shaping up as a closely monitored test of whether the recent acceleration in consumer prices is feeding through into longer-term inflation psychology, according to analysis from Westpac.

The survey, which captures the views of businesses, economists and other informed observers on where inflation is headed, is one of several the central bank will scrutinise for signs that higher prices are becoming entrenched. The two-year ahead measure carries particular weight, acting as a proxy for medium-term inflation expectations that can influence wage negotiations, pricing behaviour and, ultimately, monetary policy settings.

Westpac analysts note that expectations were already on an upward trajectory before the most recent rise in oil prices added further fuel to broader cost pressures. That earlier drift higher makes the upcoming print all the more consequential. If the survey confirms another step up in the two-year measure, it would signal that inflation psychology is shifting in ways that may be difficult to reverse without a policy response.

The risks, according to Westpac, are skewed to the upside. Increasingly widespread cost pressures have been evident in recent weeks, spanning a range of sectors and suggesting the inflationary impulse is broadening rather than narrowing. This is consistent with signals from other forward-looking surveys, which have already recorded fresh advances in both expected inflation and pricing intentions among firms.

For the RBNZ, the concern is not simply that inflation has risen in the near term, but that sustained price pressure could dislodge expectations from levels consistent with the bank’s one-to-three percent target band. A survey outcome that reflects a further deterioration in expectations would increase pressure on the Monetary Policy Committee to reassess its current settings.

The result will be watched carefully by market participants pricing rate expectations, with the two-year ahead figure likely to draw the most immediate reaction.

This article was written by Eamonn Sheridan at investinglive.com.



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