With the big driver of rising prices being pandemic-related disruption to global manufacturing and shipping, economists have been leaning towards the latter - expecting a short sharp inflationary shock.
But faith that inflation will pass through quickly has been shaken by the strength of the latest numbers.
There is no doubt we are in the thick of it now.
Housing-related costs, such as the construction of new houses and local authority rates, led the increases, Stats NZ said
Prices for construction of new houses were up 4.5 per cent for the quarter, and 12 per cent for the year.
But rises were widespread, with 10 of the 11 main groups in the CPI basket (such as food and transport) increasing in the September 2021 quarter, compared with the June 2021 quarter.
Vegetable prices rose 19 per cent, making it the second-largest upwards contributor to inflation.
Transport prices rose 4.2 per cent in the September 2021 quarter, due to higher prices for petrol, as well as international and domestic airfares.
Petrol prices rose 6.5 per cent in the quarter, and 22 per cent for the year.
The annual increase is the highest since the September 2007 quarter to 2008 quarter.
"At 4.9 per cent, the inflation beast has arrived," said KiwiBank chief economist Jarrod Kerr.
Some of the key drivers of inflation were expected to be transitory, he said.
"Global supply-chain disruption should be addressed as the world gets back to a new normal – taking the pressure off shipping costs.
"Labour shortages will hopefully abate next year as our, by then, vaccinated country starts the process of opening back up to the world."
But for the Reserve Bank, there were risks that inflation might stay at elevated levels, outside its target range (1-3 per cent) for quite some time.
"The RBNZ had already fired a 25 basis point hike and a further 100 basis points or so have been loaded. With full employment achieved and mounting inflationary pressures, the RBNZ has good reason to continue firing," Kerr said.
The New Zealand dollar rose sharply after the StatsNZ release yesterday (briefly above US71c) as markets weighed the prospect of interest rates moving up faster.
"The RBNZ will need to be less cautious," said BNZ's head of research Stephen Toplis.
The combined state of the labour market and CPI inflation meant it might need to increase the OCR by 50 basis points in November, he said.
Toplis stopped short of shifting the BNZ's official forecast to a 50 basis point hike, but suggested the odds were now close to 50/50 that the RBNZ will go that way.
ANZ economists Sharon Zollner and Finn Robinson also highlighted the risk that something more structural was lurking below the obvious supply pressures.
"There's a lot of noise in the data, with a large contribution from supply disruptions, but underneath it all is an inflation gremlin that could easily get out of hand without continued action by the RBNZ," they said.
Gradual hikes by the RBNZ should be enough to contain it but "the risks are rising that inflation pressures become ingrained into price and wage-setting".
Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell
The rise in inflation wasn't just due to global cost pressures, said Westpac senior economist Satish Ranchhod.
"Domestic demand has recovered much faster than expected. That has given businesses greater leeway to pass on cost increases into the prices of consumer goods."
This was most evident in the booming construction sector, he said.
"We also saw larger than expected increases in the prices for many recreational consumer goods, like toys and computer equipment, as well as firmness in the prices for household furnishings and durables."
"Spending in these categories has been running hot since Covid-19 first arrived and across the globe retailers are struggling to get enough stock to keep up with demand."
If there is any consolation for the Reserve Bank it is that New Zealand is far from alone in tackling this economic dilemma.
Even Nobel Prize-winning economist Paul Krugman, who has long argued this will be a transitory inflation spike, now concedes that no one can be sure.
"I might be wrong — and the data are sufficiently ambiguous that both sides can claim that the evidence supports their take," he wrote in his latest New York Times column.
