Business confidence survey suggests inflation could hit 8%, says ANZ

Monday, 28 February 2022

ANZ’s chief economist says its latest survey makes ‘grim reading’.

Business confidence “tanked” in February as Omicron worries weighed on firms, and their pricing intentions suggest inflation could go as high as 8 per cent, ANZ has reported.

The bank said confidence in the business outlook slumped 28 points, with a net 52 per cent of firms now pessimistic.

Businesses’ assessment of their own prospects slid 14 points with a net 2 per cent expecting those to deteriorate.

ANZ chief economist Sharon Zollner said the survey results reflected widespread anxiety about the impact of Omicron.

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Zollner said all but a very small number of responses would have come in before Russia’s invasion of Ukraine, which she assumed would further darken the mood.

“Inflation expectations, cost expectations, and pricing intentions all hit fresh record highs,” she said.

A net 74 per cent of firms signalled their intention to increase prices, up from a net 64 per cent in ANZ’s January survey.

That suggested consumer price inflation could hit 8 per cent, rather than peaking at about 6.5 per cent, as the Reserve Bank and ANZ were currently forecasting, Zollner said.

Record-high pricing intentions came despite the expectations of weaker activity.

Recent weakness in the New Zealand dollar probably hadn’t helped, “though every type of cost is going up”, Zollner said.

The survey supported ANZ’s contention that while Omicron would be enormously disruptive, it would not do anything to ease inflation pressures, she said.

“The survey makes grim reading, certainly.

“But this isn’t March 2020 and we do have an idea of the storm that we are heading into. Other countries have been through the Omicron wave already, and have seen a sharp bounce-back in spending on the other side.”

Zollner said that with inflation heading well over 6 per cent, the Reserve Bank had “no choice” but to keep on hiking the official cash rate.

“And now global geopolitical developments threaten yet more imported inflation via energy markets,” she said, referring to Russia’s war on Ukraine and the expected impact of sanctions.