WELLINGTON: New Zealand consumer prices unexpectedly edged higher in the fourth quarter, while a measure of underlying domestic inflation showed pressures growing, backing views the central bank is on the verge of raising interest rates.
The consumer price index rose 0.1 percent in the three months to Dec 31, data showed on Tuesday.
The annual rate edged up to 1.6 percent, the highest since March 2012, and confirmed inflation is now well established in the bottom part of the Reserve Bank of New Zealand's (RBNZ) 1.0 to 3.0 percent target band.
The data was above the median of a Reuters poll of economists, which expected a 0.1 percent decline, and the central bank's forecast of a fall of 0.2 percent.
The non-tradables component of the index, a barometer of domestic inflation that includes electricity, house rents, and property prices, rose 0.5 percent on the previous quarter for an annual rise of 2.9 percent, the highest since September 2011.
"It's on the high side of the RBNZ's expectations but not enough to prompt a rate rise this month," said Nick Tuffley, chief economist at ASB Bank, while adding that the data all but cemented expectations that the central bank will start raising rates in March.
The RBNZ signalled last year it was likely to start raising rates by the middle of this year, as a strongly performing economy triggers inflation pressures.
The New Zealand dollar jumped to $0.8328 from around $0.8265 before the data, while interest rate futures <0#NBB:> fell.
The central bank, which pioneered inflation targeting, has said the speed and extent of rate rises is dependent on the impact that higher house prices and construction costs have on broader inflation pressures.
In a bid to cool the rise in house prices, and reduce the risks to the financial system from a sharp market downturn, the RBNZ imposed limits on the amount banks can lend for low-deposit property loans since last October.
To date the limits appear to have had little impact on prices, although the number of low deposit loans has fallen markedly, and the number of house sales is lower.
A recent Reuters poll shows 14 of 17 economists expect a rate rise in the first quarter of this year, which would see it as the first of the developed economies to start tightening policy.
During the quarter, lower fresh food, and petrol prices, were offset by rises in airfares, new house prices, property maintenance, and house rents.
Tradable prices, those which are open to competition, and can also reflect the level of the exchange rate, fell 0.5 percent, to be 0.3 percent lower on a year ago.
The government statistics agency said new house prices were highest in Auckland and the Canterbury region, where earthquake reconstruction is driving prices as well as house rentals.
The economy is expected to grow at an annual rate of at least 3 percent over the next two years, boosted by strong commodity prices, which are underpinning terms of trade at 40 year highs, stronger building activity, a housing market at record levels, and solid domestic demand being boosted by migration gains.
The RBNZ has said the speed and extent of rate rises will depend on how much house, and building costs spill over into general inflation, as well as the strength of the currency, which contains imported price pressures.
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