Despite inflation pressure remaining intense, business confidence rebounded in August, the latest ANZ Business Outlook shows.
Unfortunately, with the Reserve Bank seeking to cool economic activity and inflation, that might not be such a good thing.
Firms reported an improvement in general confidence and expectations about their own activity, although the rise was off a low base with the net responses still skewing to the negative.
"Most activity indicators lifted for a second month, with capacity utilisation a marked exception," said ANZ chief economist Sharon Zollner.
"Inflation pressures remain intense. Inflation expectations were all but unchanged at their highs, and the net proportion of firms expecting higher costs was steady."
The mood lift was most evident amongst manufacturing, agriculture and services firms, while retail firms continued to get more pessimistic, Zollner said.
There was a sizeable bounce in the construction sector although the overall level of confidence remained "dire", she said.
Construction was still the most downbeat sector although, on the plus side, its expected costs fell sharply, she said.
While a mild rebound in activity indicators was ostensibly good news, the survey would not be particularly encouraging for the RBNZ, Zollner said.
In fact it might mean interest rates needed to go higher than the market currently has priced in, she warned.
"The impact of higher rates on the housing market and the construction sector is hard to miss, but there's more to slowing inflation than just that. Business inflation indicators have been very reliable in terms of predicting where inflation is heading," she said.
"They are a smidgen lower at best, but remain far too high."
But firms outside of the retail sector seemed to be feeling more confident about the activity outlook.
Employment intentions actually lifted and were still net positive across retail, manufacturing and agriculture.
"Of course, monetary policy takes time to impact the economy, as people gradually roll on to higher fixed mortgage rates," Zollner said.
"However, it would make sense that with inflation and wage inflation running so high, the neutral Official Cash Rate is creeping higher, meaning the sting of a given interest rate wears off.
"Risks are tilted towards the RBNZ having to continue on with OCR hikes next year to cool the economy sufficiently to feel comfortable they're getting on top of the inflation problem."
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