New Zealand's inflation rate rose an unexpectedly strong 1.3 per cent in the September quarter, taking the annual rate to 1.7 per cent.
Publishing the data today, Statistics New Zealand (SNZ) said the annual rise was the lowest in 5-1/2 years.
SNZ prices manager Chris Pike said the rise in the September quarter was driven by higher food prices and international airfares, and by levy, excise and tax rises that usually happened at this time of year.
The 1.3 per cent rise in the September quarter followed rises of 0.6 per cent and 0.3 per cent in the June and March quarters, respectively, and a fall of 0.5 per cent in the December quarter.
For the year, a big contributor to the lower annual increase came from petrol prices and airfares falling , partly offsetting higher prices for food, electricity, and local authority rates, Pike said.
The New Zealand dollar jumped to 74.36 US cents from 74.02 cents immediately before the report and reached as high as 74.47 cents, challenging last week's 14-month high of 74.50. The kiwi jumped to 81.15 Australian cents from 80.83 cents. The trade-weighted index climbed to 66.62 from 66.34.
ASB Bank economist Nick Tuffley said the inflation number was "significantly stronger than anticipated - anything more than a 0.2 percentage point surprise becomes significant and 0.4 is a huge difference."
"The lift in inflation will be an unpleasant surprise for the Reserve Bank," said Tuffley. "Though the mitigating factor is housing remains subdued. "
But further 'administrated inflation' in the form of additional ACC and medical charges could not be ruled out, and a series of 'one-offs' will make the background inflation picture that much higher.
"We see the inflation outcome and recent strengthening in house price increases as making the Reserve Bank more reluctant to leave substantial stimulus in place for a prolonged period," said Tuffley.
" The risk has grown of the Reserve Bank unwinding the stimulus earlier than it implies."
ASB economists had been predicting a June rise in the OCR - or 'start to the tightening cycle' with the risk of it coming earlier in April 2010.
"We now see April as the more likely timing," said Tuffley.
Inflation was "surprisingly strong," said Khoon Goh, senior markets economist at ANZ National. "The Reserve Bank will not welcome this. There's a risk we will see an earlier tightening than what was expected."
The jump in inflation was a reflection of higher-than-expected government charges and the impact of companies raising prices to rebuild margins eroded by recession, he said.
The so-called non-tradable component rose 1 per cent in the third quarter, for an annual increase of 3 per cent - higher than the central bank and many economists had expected. The increase reflected gains in electricity prices, local authority charges and beer. Tradables inflation rose 1.6 per cent from the second quarter.
Bollard has said he will keep interest rates "at or below" current levels through until the second half of 2010 though traders have been betting he will go earlier.He will begin raising interest rates in March, based on Overnight Indexed Swaps, which show the OCR 30 basis points higher that month.
By July, the OCR jumped 125 basis points. Imre Speizer, market strategist at Westpac, said as a first step, Bollard may drop the words "or below" from his next monetary policy review on October 29, signaling an easing bias is off the table, Speizer said.
Transport prices fell 5.5 per cent during the year with petrol down 19 per cent, international air transport down 15.1 per cent, and diesel down 38.8 per cent.
Petrol and diesel prices peaked in July last year.
In the year to the September 2009 quarter, food prices increased 5.4 per cent, accounting for well over half of the CPI annual increase of 1.7 per cent. Electricity prices rose 4.5 per cent and local authority rates rose 6.6 per cent.
The annual inflation rate has fallen from an 18-year high of 5.1 per cent in the September 2008 quarter.
The increase in the CPI was bigger than expected, with the median forecasts in a Reuters poll of economists being for a third quarter rise of 0.8 per cent and annual rise of 1.2 per cent.
- NZPA / BUSINESSWIRE / NZ HERALD STAFF
