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New Zealand business confidence fell at the start of 2017 but, more importantly for the country's central bank, inflation pressures picked up, a private survey showed on Tuesday.
Though businesses optimism waned from two-year highs hit the previous quarter, signs that inflation would rise suggested the Reserve Bank of New Zealand's (RBNZ) bid to boost tepid price growth by keeping rates at record lows was working.
A net 17 percent of firms surveyed expected general business conditions to improve compared with 28 percent in the previous quarter, the New Zealand Institute of Economic Research's quarterly survey of business opinion (QSBO) showed.
The survey's measure of capacity utilisation was 93.6 percent, the highest ever, up from the previous quarter's 92.7 percent.
"Capacity pressures and pricing point to a further lift in inflation," said Christina Leung, senior economist at NZIER.
A net 15 percent of businesses were able to lift prices in the first three months of the year, up from 7 percent the previous quarter, driven by strong growth in construction.
Despite expecting inflation to settle near the central bank's target mid-point of 2 percent this year, the NZIER thought the bank would continue to hold the official cash rate (OCR) at 1.75 percent until mid-2018.
"With uncertainty, particularly when it comes to global backdrop, we do expect RBNZ to be fairly cautious when it comes to lifting the OCR," Leung said.
