New Zealand businesses have trimmed their expectations for consumer inflation over the next two years as the rosy outlook for a booming economy comes off the boil.

The consumers price index is seen rising an annual 1.59 percent on a mean basis in the year ahead, down from the 1.96 percent pace seen three months ago, according to the Reserve Bank of New Zealand's survey of expectations. Two-year inflation expectations were lowered to 2.06 percent from 2.23 percent, and respondents anticipate a 0.26 percent lift in CPI in the December quarter, followed by a 0.4 percent rise in March.

"The Reserve Bank recently adjusted its interest rate guidance, suggesting that fewer OCR hikes will be necessary because inflation has turned out surprisingly tame," Westpac Bankiong Corp's New Zealand chief economist Dominick Stephens said in a note. "This fall in inflation expectations helps to vindicate the Reserve Bank's stance. Indeed, the magnitude of this decline in expectations might even contribute towards a further downgrade in the RBNZ's interest rate forecasts."

The CPI rose at an annual pace of 1 percent in the September quarter, below expectations, and only just within the Reserve Bank's target band of between 1 percent and 3 percent. Strong inbound migration and a depreciation in the kiwi dollar during that period had been expected to put pressure on consumer prices, and the central bank has been surprised by the lack of inflation in the economy.

A net 27 percent of surveyed firms see monetary conditions as being easier than neutral, with the official cash rate at 3.5 percent, compared to 19 percent in the prior quarter, and a net 27 percent expect conditions will still be easy in March. By the end of September next year, a net 3 percent anticipate conditions to be tighter than neutral.

Firms see the 90-day bank bill rate at 3.69 percent by the end of December, rising to 3.85 percent nine-months later, while 10-year government bond yields are expected to be 4.44 percent by the end of September next year.

Today's survey showed firms cut their expectations for economic growth, with a one-year outlook on gross domestic product expansion of 2.7 percent, compared to 3.1 percent three months earlier. Two-year expectations slipped to 2.5 percent from 2.7 percent.

Unemployment is expected to fall to 5.3 percent in the year ahead, and 5.2 percent the following year, from the current rate of 5.34 percent. That's not seen as translating into much higher wages, with one-year ahead hourly earnings growth expectations of 2.47 percent, compared to 2.55 percent three months earlier, and two-year ahead growth of 2.6 percent, compared to a previous view of 2.75 percent.

The survey was conducted on Nov. 12 and 13, and was of 76 business managers and professionals.