ANALYSIS: Every three months the economic research group NZIER conducts a survey of non-farming businesses around the country called the Quarterly Survey of Business Opinion – QSBO. This week the results from the latest survey were released and they tell us some important things. The first is that when businesses are asked about what they plan doing with their selling prices in the next three months only a net 7% say they plan raising those prices.
Three months ago this was a net 23% and a year ago 45%, with the long-term average 21%. This can make us confident that inflation is easing off rapidly at the moment and little stands in the way of the Reserve Bank cutting the Official Cash Rate 25 basis points to 5% on October 9, or maybe even 50 basis points if it is feeling generous.
However, this week also saw the release of the ANZ’s monthly Business Outlook Survey. It asks not about the next three months but the coming year and that is where things get interesting. A well above average net 43% of businesses still say that they plan raising their selling prices in the coming 12 months.
The two surveys could be telling us that the rapid decline in inflation currently underway may not necessarily cause the Reserve Bank to be worried about the rate falling below the 1% bottom of the 1-3% target band further out. How is that relevant?
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Not so much for the coming few months when monetary policy will continue to be eased. But come the second half of 2025 don’t be surprised if the Reserve Bank pauses its rate cuts to see how things are going.
It may be encouraged to do this because as with price setting plans we can also see quite a difference between the short and medium terms when it comes to business thoughts about the strength of the economy.
The QSBO showed that a net 1% of businesses still think things will get worse in the next six months. But the ANZ survey shows a very high net 61% expect things to be good in a year’s time.
I read this as businesses embracing the mantra “survive to 25”. Times are seen as tough now and set to remain so for a while longer, but just over the horizon lies economic nirvana with robust customer flows – all because of lower borrowing costs.
Independent economist Tony Alexander: "While the inflation genie may be almost back in the bottle for the moment it could easily pop back out again." Fiona Goodall
But it pays to remember that about one-third of our exports go to China and its economy is in a weak state. House-building activity is set to keep falling through to the end of 2025. Councils plan radically raising our rates again and again. The Government is tightening fiscal policy. Declining sheep numbers and problems with electricity supply and prices are causing factories and processing plants to close down.
Better times lie ahead, for sure, and it is right for businesses and investors to plan for them. But while the inflation genie may be almost back in the bottle for the moment it could easily pop back out again – that is what businesses in the ANZ survey are telling us.
With regard specifically to the housing market I’ve just completed my monthly survey of real estate agents and there are two main things to say. First-home buyers and investors are actively out looking for properties, with lots of people showing up at open homes and increasingly auctions.
However, we remain solidly in a buyer’s market and FOMO is not taking off. This suggests immediate prospects for average price gains are muted, which is good news from an affordability point of view but bad news for decreasingly active builders hoping that price growth may return and encourage people again to build rather than buy second-hand houses. For the moment the incentive remains firm to purchase something already there.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
