Wellington, New Zealand – The Reserve Bank of New Zealand (RBNZ) is grappling with concerning inflation expectations, according to the inaugural results of its new Tara-ā-Umanga Business Expectations Survey. The survey, designed to be a key resource for the RBNZ, indicates that businesses anticipate rising inflation across various timeframes, presenting a challenge for policymakers.

This development follows similar trends observed in the RBNZ’s pre-existing Survey of Expectations, released the previous friday. The combined data creates a complex scenario for the RBNZ as it prepares for its upcoming Official Cash Rate (OCR) review on May 28.

Key Findings from the Tara-ā-Umanga Survey

• The survey, conducted by Research New Zealand – Rangahau Aotearoa on behalf of the RBNZ, polled 636 businesses across diverse sectors.
• Data collection occurred after the release of Stats NZ’s March Consumers Price Index (CPI) on April 17, 2025, which showed annual CPI inflation at 2.5%, up from 2.2% in the December 2024 quarter.
• businesses’ expectations for annual CPI inflation have increased across all time horizons, according to the RBNZ’s summary of results.

Inflation Expectations on the rise

Specific findings from the survey highlight the upward trend in inflation expectations:

• Mean one-year-ahead annual inflation expectations rose by 19 basis points, from 2.25% to 2.44%.
• Mean two-year-ahead annual inflation expectations increased by 7 basis points, from 2.47% to 2.54%.
• Mean five-year-ahead and 10-year-ahead annual inflation expectations climbed to 3.06% and 3.94%, respectively.

RBNZ’s Perspective and Policy Implications

The RBNZ is particularly concerned about the broad-based increase in inflation expectations across all timeframes. The central bank actively works to manage these expectations, recognizing that they can become self-fulfilling prophecies.

Inflation expectations are significant “as households and businesses reflect their expectations in their price- and wage-setting decisions”.

Reserve Bank of New Zealand

the RBNZ emphasizes that improving the quality of its expectation surveys is part of a broader effort to enhance monetary policy decision-making. This initiative stems from a 2022 review that identified areas where better data could improve policy outcomes.

Improving the quality of our expectation surveys is part of the wider response to our 2022 review of how we formulate and implement our monetary policy. In this review, we identified several areas where better data could support high quality monetary policy decision-making.

Reserve Bank of New Zealand

OCR Decision and Future Outlook

The market widely anticipates a 25-basis-point reduction in the OCR,from 3.50% to 3.25%, at the May 28 review. Though, the RBNZ’s forward guidance on future OCR decisions will be closely scrutinized. Some economists have projected the OCR to fall as low as 2.50% by year-end, but the latest inflation expectation data may temper those expectations.

About the tara-ā-Umanga Business Expectations Survey

The RBNZ describes the survey as:

tara-ā-Umanga Business Expectations Survey is a representative sample survey of New Zealand businesses. The survey enhances our understanding of inflation and other macroeconomic expectations, to inform policy making and support research. It is our third expectations survey, alongside our Household Survey of Expectations and Survey of expectations (professional forecasters, economists and industry leaders).

Reserve Bank of New Zealand

The survey’s development began in 2023, with pilot surveys conducted in 2024. The regular quarterly publication of the survey commenced after a prosperous development phase. Results are released before each quarterly Monetary Policy Statement.