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Preliminary business confidence: Cost plus

Fuseworks Media
Fuseworks Media

The preliminary ANZ Business Outlook data for April saw business confidence fall 4 points to -8%, while the own activity outlook was unchanged at +16.4%.

Details on the activity side were flat to weaker. Employment and investment intentions were unchanged, and export intentions rose slightly, but capacity utilisation fell 3 points. Expected credit availability also fell 6 points. The proportion of firms reporting higher employment than a year ago fell 2 points.

Cost and inflation pressures remain intense. Pricing expectations hit a new high, in data that goes back to 1992. Cost expectations data only goes back two years but also hit an eye-watering high of a net 75% of respondents expecting higher costs. Inflation expectations remain well behaved at 1.96%

Despite intentions to pass costs on where possible, profit expectations fell 3 points, with a net 4% of firms expecting lower profitability ahead.

"The stresses and strains in the New Zealand economy are starting to show", said ANZ Chief Economist, Sharon Zollner.

"Although reported own-activity expectations are off their highs, cost pressures are intense, and subdued profitability expectations suggest firms are not optimistic about their ability to recoup all of it.

"Rising costs are an economy-wide issue. Shipping disruptions, rising global commodity prices, the higher minimum wage, and skill shortages are creating something of a perfect storm.

"It’s inflationary, but not growth-friendly, so the RBNZ will look through it as long as it appears transitory".

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