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NZD Gains as NZ Business Confidence Turns Positive, Inflation Stays Contained
ANZ Business Confidence returns to positive territory at 10.0 in May. Inflation expectations edge lower, keeping RBNZ on gradual tightening path for NZD.
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New Zealand business sentiment swung from negative to positive in May, a shift that changes the policy calculus for the Reserve Bank of New Zealand. The ANZ Business Confidence index rose from -10.6 to 10.0, and firms' Own Activity Outlook increased from 19.6 to 25.6. The rebound suggests the initial shock from the Middle East conflict and surging energy costs is fading. Activity remains below pre-conflict levels. The direction of change matters for the policy path.
Beneath the headline, inflation expectations one year ahead fell from 3.81% to 3.63%. Short-term wage expectations edged down from 2.53% to 2.48%. Employment intentions rose from -2.7 to 3.4, indicating firms are more willing to hire. ANZ analysts noted that wage intentions are a better guide to underlying inflation than short-term price expectations. Both measures remain contained. This is the key input for the RBNZ.
Inflation Expectations and the RBNZ Policy Path
The survey gives the RBNZ room to continue its gradual normalization without accelerating. Firms report rising costs and margin pressure. Their limited ability to pass those costs on to customers in a soft demand environment keeps a lid on broader inflation even as headline CPI stays elevated. The RBNZ can stick to its tightening bias without needing to accelerate or pause.