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Business confidence fell five points to +6 in June while firms’ expected own activity was unchanged at +12, the latest ANZ Business Outlook survey shows.

But, in what looks like a good sign for the Reserve Bank (RBNZ), pricing intentions fell seven points to 35 and cost expectations fell from 73 to 69. Inflation expectations eased from 3.6% to 3.5%.

“The medicine is working,” said ANZ chief economist Sharon Zollner.

“The economy is clearly weak, as the RBNZ intended, but more than that, we are finally seeing renewed meaningful progress on bringing inflation pressures down.”

“There is still a long way to go, but we are optimistic that the RBNZ will be in a position to cut the official cash rate considerably earlier than August next year, as they currently expect.

Construction was experiencing the largest fall in activity versus a year earlier, followed by retail, but every sector except agriculture is reporting weaker activity than a year earlier, the survey found.

“While Q1 GDP was (barely) respectable, the signals for Q2 GDP are extremely weak. We have pencilled in a small decline at this early stage.

But inflation expectations also continued to steadily decline.

The net proportion of firms expecting higher costs and need to raise their prices in the next three months both dropped “meaningfully” Zollner said.

“Both have now fallen off the plateau they were stuck on for eight to nine months this year,” Zollner said. “

Firms’ numerical estimates of where their own selling prices would be in three months’ time also dropped out of the 1.8 -1.9% level it has been stuck on for four months, with a 0.6% (point) fall to 1.2%.

ANZ chief economist Sharon Zollner says inflation needs to drop soon if we want to avoid more Reserve Bank interest rate rises.

The fall was broad-based, rather than driven by one sector, Zollner said.

Average pricing intentions for the retail sector dropped from 2% to 1.3%. Expected price increases are highest for manufacturing, and lowest for construction.

The magnitude of expected costs also eased from 3.0% to 2.7%, though here there was a mix of falls and small rises, she said.

“Average reported wage increases versus a year earlier rose from 3.4% to 3.6%, but expectations for wage settlements over the next 12 months fell from 2.8% to 2.6%. The biggest fall was in the services sector, which provides three-quarters of jobs in the economy, so that’s a win for the RBNZ’s inflation fight.”

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.