New Zealand's inflation accelerated sharply in the third quarter, driven by higher fuel prices and a weaker currency, though analysts expect the central bank to look past those transitory factors and keep rates low for an extended period.
Chances for future rate cuts, which were already very slim but were left on the table by policymakers in recent comments, were seen diminishing. This gave some support to the New Zealand dollar and pushed bond yields 2-3 basis points higher. Consumer prices rose 1.9 percent year-on-year in the third quarter, compared with a median forecast in a Reuters poll of 1.7 percent and up from 1.5 percent in the second quarter, data showed on Tuesday. Inflation is now close to the Reserve Bank of New Zealand's (RBNZ) target mid-point of 2.0 percent.
But RBNZ was expected to look past the headline numbers and keep to a commitment to hold interest rates at a record low through 2019 and into 2020, as there were few compelling signs of stronger underlying price pressures. "With core measures still relatively subdued, we expect the RBNZ to remain patient, even if headline CPI rises above 2.0 percent in the near term," ASB economists said in a note.
Inflation excluding volatile food and energy prices, edged up marginally, to 1.2 percent year-on-year from 1.1 percent. Other core measures were also little changed: the trimmed mean held steady at 1.8 percent, while the weighted median slowed to 2.2 percent from 2.3 percent.
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