KEY POINTS:
Alan Bollard has little choice but to raise interest rates next week - and probably push the kiwi dollar higher as a result.
Already today the kiwi has hit its highest level since it was floated 22 years ago and there's now little to stop it climbing further.
This morning's inflation data showed that the consumer price index rose 0.5 per cent in the March quarter. That's nearly double the 0.3 per cent forecast by the Reserve Bank last month when Bollard warned he might have to hike interest rates again.
What's worse for Bollard is that much of the inflation was caused by the still-booming housing market. House rents and the cost of buying newly-built houses rose 1.1 per cent in the quarter. This number belies any hopes of a housing slowdown, which Bollard said last month was "essential if we are to see a reduction in medium-term inflation pressures".
Non-tradables inflation - that is inflation driven by domestic demand - was up 1.2 per cent in the quarter and 4.1 per cent anually, a clear sign that the economy is picking up.
Bollard will almost certainly increase interest rates next week in another attempt to cool the economy and inflation.
Certainly the market thinks so.
Following the inflation data the kiwi jumped as high as US74.78c - just above the previous high of US74.65c in March 2005.
Foreign investors are now buying the currency in the expectation that Bollard will lift the official cash rate to 7.75 per cent, further increasing the gap between the high fixed-income returns available here and those available in Japan and Europe.
It looks like the only way for the kiwi at the moment is up.
