Business confidence jumped 21 points to +27 in July, and firms’ expectations for their own activity lifted 4 points to +16, the ANZ Business Outlook survey shows.

But the July survey was a mixed bag, ANZ chief economist Sharon Zollner said.

“Forward-looking activity indicators generally bounced with a bit of a ‘well, can’t get any worse’ vibe to it”, she said.

Reported past activity, which has the best correlation to GDP, fell further to a net 24% of firms reporting that activity in the previous month was lower than a year earlier.

“Most sectors continue to deteriorate, with construction and retail the weakest sectors by quite some margin.”

The economy-wide indicator was looking very soft, she said.

Firms’ numerical estimates of where their own selling prices will be in three months lifted for every sector except services, though not in a way that threatened the downward trend, Zollner said.

The average lifted from 1.2% to 1.4%. The construction sector had the lowest pricing intentions (1%).

“Encouragingly for the RBNZ, the 29% of responses that came in after both the RBNZ Monetary Policy Review (10 July) and the CPI data (17 July) showed lower inflation expectations, pricing intentions and particularly cost expectations (interest rates are a cost for many businesses),” she said.

The activity indicators were not notably different.

A heatmap of different industry sectors showed a real mixture of results, Zollner said.

“Construction is the most pessimistic, but firms across the economy are still pretty blue.”

ANZ chief economist Sharon Zollner says the inflation "dragon" is almost defeated. Photo / File

Reported wage increases versus a year earlier lifted from 3.6% to 3.8%. Arguably this was more important for the inflation outlook, Zollner said.

Expectations for wages over the next 12 months were steady at a rate the RBNZ would likely be quite content with.

“We’re still in a ‘bad news is good news’ world as far as the RBNZ is concerned, but hopefully not for too much longer,” she said.

“With increasing evidence that monetary policy has worked and possibly rather too well, there is now a widespread expectation that the RBNZ will commence easing the Official Cash Rate this year.

Just as it took time for the pain from rate hikes to feed through into the broader economy, lower rates would not provide immediate relief to many.

“With unemployment rising and fiscal policy now far less expansionary, things are likely to feel worse before they feel better.

“But the evidence is mounting that the inflation dragon is on its last legs, which sets the New Zealand economy up for a more robust recovery than if the job were half done”.

Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist, as well as presenting and producing videos and podcasts. He joined the Herald in 2003.