Inflation of 4.9% seen in survey

Press, 25 August 1988, Page 27

Inflation of 4.9% seen in survey

PA Wellington Sharply falling expectations about inflation are confirmed in the latest Reserve Bank survey of top finance and business people, with the annual rate expected to fall to 4.9 per cent by June, 1989.

That is down from the bank’s June quarter survey which found the average of expectations for inflation in the 12 months ahead was 6.8 per cent. Since that survey, the latest June quarter consumers price index has been released, bringing the rate down to 6.3 per cent for the year to June. Half of 196 respondents who gave a view on inflation to next June predicted the rate would be under 5 per cent, while a quarter of them expected it would be under 4 per cent.

’ The bank survey done a year ago produced an average expectation of year-ahead inflation of 9.8 per cent.

The latest one found respondents on average expected CPI increases in the present quarter and December quarter of 1 and 1.1 per cent, giving annual rates of 5.7 and 4.8 per cent respectively. Looking ahead to June,

1990, the expectation was for a further small improvement to 4.6 per cent. Of those questioned in the latest survey, on August 10, 70.2 per cent said monetary conditions were still tighter than neutral. That was well down from the June survey, when the percentage with that view was 92.3. The latest survey showed some easing of conditions was expected from now on. Those expecting a tighter than neutral position by the end of 1988 were 61.6 per cent and by next June, 41.3 per cent. Five-year Government stock rates were expected on average to fall to 12.7 per cent by the end of next month, compared with trading yesterday round 12.91 per cent. The average expectation on the rate by next June was 11.5 per cent.

The business and finance leaders also expected a closing of the yield gap with longerterm rates.

The 90-day bank bill rate was expected on average to be down to 14.6 per cent by October and 12.8 per cent next June. Rates yesterday were actually lower, at around 14.1 per cent.

Expectations of declining exchange rates were also well above the trend now emerging.- Respondents picked average US65.Bc and AustB3c levels for the New Zealand dollar by the end of next month.

Even by next June, the average expectations were for the kiwi to be down to only U562.3c and Aust79.9c.

Expectations were for a steady escalation in unemployment over the next nine months at least. The average prediction for the number of registered jobless at the end of September was 128,000 and at next June, 154,000. Economic activity was seen as slowing further in the June quarter, with the real gross domestic pro- ; duct index falling 0.4 per cent. The index was expected to fall another 0.3 per cent in the present quarter. However, some pickup was anticipated in the first half of next year with respondents on average predicting a GDP fall in the year to next June of 0.1 per cent — an improvement on the 0.2 per cent fall in the year to next March which was predicted in the previous survey.