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There was a jump in inflation expectations for a year out but two years ahead were more contained, which should reassure the RBNZ as it focuses on the medium-term. In its survey of forecasters, economists and industry leaders, 1-year inflation is expected to rise to 3.4% up from Q1’s 2.6%, while 2-years ahead is only 0.1pp higher at 2.5% and believed to be within the RBNZ’s 1-3% target band on that time horizon. Both the 1- and 2-year measures are the highest since Q4 2023. 

NZ CPI vs 2-year inflation expectations y/y%

Source: MNI - Market News/LSEG

• While headline inflation in Q1 remained at 3.1%, above target, the RBNZ’s core eased 0.1pp to 2.7%. With 2-year inflation expectations currently anchored, soft growth, heightened uncertainty and a weak labour market likely to contain wage growth, the RBNZ should be able to hold for now.
• April food and other prices print 15 May and will be monitored for early signs of second-round effects from higher fuel & fertiliser prices.
• Monetary conditions were perceived in the survey to be easy at the end of Q2 but less so than both Q4 and Q1 but significantly more so than Q3 2025. They are expected to remain stimulatory in Q3 2026 but to be tight in a year.
• Q2 household inflation expectations are released on 20 May but they tend to run ahead of the economic survey and actual CPI outcomes. The mean 1-year ahead measure has a good correlation with underlying inflation though.

NZD/USD a little weaker post the RBNZ inflation expectations print. From above 0.5960 we were last 0.5940. 2yr swap rates edging off session highs (last 3.45%, 3.49% was the earlier high). Overall moves still marginal though.

• Market may have been looking for a stronger print. 2yr expectations firming to 2.53%, from 2.37% prior. We remain comfortably sub 2022 peaks of 3.60%.