Firms' pricing plans at highest since May as NZ confidence ticks up to +53

With pricing intentions turning firmer and inflation expectations anchored at 3.3%, the RBNZ has little reason to back away from its tightening bias. The upbeat activity numbers likewise blunt any suggestion that the oil shock is squeezing demand. That offers only modest help for the New Zealand dollar, even if the currency's softness is itself fuelling the services export boom. Crude remains the main swing factor: ANZ's numbers show a close correlation between business mood and oil prices this year, meaning a fresh spike tied to the Iran conflict would pose the biggest threat to that resilience.

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Businesses are absorbing the latest oil shock considerably better than they did the earlier one, yet stronger plans to lift prices mean the RBNZ is keeping a close watch, just as owners are.

Summary:

• ANZ's confidence index advanced one point to +53 in October, while expected own activity slipped two points to +46
• Reported past activity increased four points to +15, with all sectors in positive territory
• A net 52% of firms plan price increases, four points higher and the most since May, with the average expected rise reaching 1.9%
• Cost expectations remained at a net 82%, and inflation expectations held at 3.3%
• Services export intentions reached a 25-year peak, helped by the weak New Zealand dollar
• ANZ said the renewed oil-price rise has not brought back the confidence shock seen in the second quarter

The ANZ Business Outlook for October recorded a slight uptick in business confidence and the strongest pricing intentions since May, pointing to an economy enduring the renewed oil-price surge better than was widely feared.

The headline confidence measure gained a point to hit +53. Expected own activity, which ANZ treats as a more dependable read on the economy's direction, fell two points but remained solid at +46. Reported past activity, a comparison of current trading with a year earlier, rose four points to +15, and every sector was positive.

Price signals were mixed but tended upward. A net 52% of businesses expect to raise prices over the next three months, an increase of four points, while the average expected price rise moved up to 1.9%, its highest since June. Cost expectations were unchanged at a high net 82%, and one-year-ahead inflation expectations were flat at 3.3%. ANZ observed that cost expectations have stayed contained in the face of higher fuel prices, but cautioned that firms are basing increases on an already elevated starting point.

In other findings, services firms' export intentions rose to their best level in 25 years, a result ANZ tied to the weak New Zealand dollar, and tourism businesses reported strong forward bookings. Investment intentions fell from +23 to +18, and employment intentions stayed around +17. Wage expectations near 2.8% imply only minor upside risk to the RBNZ's wage projections, ANZ said. On a regional basis, Wellington was the most confident and Canterbury the least.

ANZ described the renewed rise in oil prices as a headwind for New Zealand and the global economy, but said the survey matches what the bank is hearing from owners: the confidence shock that all but halted activity in the second quarter has not reappeared. Some businesses are surprised by how well demand has held up once prices were raised, while others are recognising that endlessly deferring decisions such as investment carries its own risks.

With interest rates climbing and pricing intentions hardening, the next survey, scheduled for November 30, will determine whether that resilience holds against both energy-cost pressures and tighter monetary policy.