Odds on earlier interest rate hike shorten

The central bank's latest survey showed a sharp jump in two year ahead inflation expectations from 2.6% three months ago to 3%, even as businesses wound down their expectations of how fast the economy will grow.

They now expect the economy to grow 2.1% over the next year, down from the 2.5% annual growth they were expecting three months ago.

The survey results were sufficient to push wholesale interest rates up about five basis points across the board - for example, the two-year swap rate, from which two-year fixed mortgages are set, rose five basis points to 3.32%.

"These are fundamental signals to us that people expect inflation to be running on the high side," says Craig Ebert at Bank of New Zealand, which is expecting Bollard will next raise his official cash rate (OCR) in December. The OCR is currently at 2.5%, its record low.