Firmer pricing intentions and inflation expectations stuck around 3.3% give the RBNZ little reason to ease off its tightening. The resilient activity readings also undercut any argument that the oil shock is crushing demand. For the New Zealand dollar, that is a modest support, though the currency’s weakness is itself feeding the services export boom. The oil link remains the main swing factor: ANZ’s data shows business sentiment tracking crude closely this year, so any renewed spike in prices tied to the Iran conflict would be the biggest threat to this resilience.

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New Zealand business has taken the latest oil shock on the chin far better than it took the last one, but rising price plans mean the RBNZ will be watching just as closely as the bosses.

Summary:

• ANZ business confidence rose 1 point to +53 in October, while expected own activity eased 2 points to +46
• Reported past activity rose 4 points to +15, with all sectors positive
• A net 52% of firms expect to raise prices, up 4 points and the highest since May, and the expected average increase rose to 1.9%
• Cost expectations held at a net 82%, and inflation expectations were steady at 3.3%
• Services export intentions hit a 25-year high, helped by the weak New Zealand dollar
• ANZ said the second-quarter confidence shock has not been repeated despite the renewed rise in oil prices

New Zealand business confidence edged up in October and firms’ plans to raise prices climbed to their highest since May, the ANZ Business Outlook survey showed, suggesting the economy is weathering the renewed jump in oil prices better than many had feared.

Headline business confidence rose 1 point to +53, while expected own activity, which ANZ regards as the more reliable guide to the economy’s direction, eased 2 points to a still-solid +46. Reported past activity, which compares current trading with a year earlier, improved 4 points to +15, with every sector in positive territory.

Price pressures were mixed but leaned higher. A net 52% of firms expect to raise prices over the next three months, up 4 points, and the average expected price increase rose to 1.9%, the highest since June. Cost expectations held at a very high net 82%, while one-year-ahead inflation expectations were steady at 3.3%. ANZ noted that cost expectations have stayed contained despite higher fuel prices, but cautioned that firms are estimating increases from an already inflated starting point.

Among the other details, services firms’ export intentions jumped to their highest in 25 years, which ANZ linked to the weak New Zealand dollar, with tourism operators reporting strong forward bookings. Investment intentions slipped to +18 from +23, and employment intentions held at around +17. Wage expectations of around 2.8% suggest only marginal upside risk to the Reserve Bank of New Zealand’s wage forecasts, according to ANZ. Wellington recorded the highest regional confidence, while Canterbury was the lowest.

ANZ said the renewed rise in oil prices is a headwind for both New Zealand and the global economy, but that the survey matches what it is hearing from business owners: the confidence shock that brought activity close to a standstill in the second quarter has not been repeated. Some firms have been surprised by how well demand has held up despite price increases, while others are realising that continually putting off decisions such as investment carries its own risks.

With interest rates rising and pricing intentions firming, the next survey, due on November 30, will show whether that resilience can withstand both higher energy costs and tighter monetary policy. 

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

Source: Investing Live - Central Bank