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Higher than expected inflation lifts kiwi

NZ Newswire logoNZ Newswire 4 days ago Rebecca Howard

The New Zealand dollar gained on Thursday after consumer prices rose at their fastest annual pace in five-and-a-half years in the first quarter of 2017.

This marked the first time inflation has hit the mid-point of the central bank's 1 per cent-to-3 per cent target range since September 2011.

The kiwi was trading at US70.37c as at 5pm in Wellington versus US69.99c as at 8am but was largely unchanged from 70.44c Wednesday.

"It was a decent surprise and it was partly due to one-offs but some of the details came in on the stronger side too," said ANZ Bank New Zealand senior economist Phil Borkin.

"The overall message is that core inflation is increasing," although perhaps more gradually than the headline number would suggest, he said.

The consumers price index rose 1 per cent in the three months to March 31 for an annual pace of 2.2 per cent, as rising fuel prices, a tax on cigarettes and tobacco and the hot housing market stoked inflation.

Excluding gasoline and cigarettes and tobacco, the CPI showed a 1.5 per cent increase, Stats NZ said.

Still, Mr Borkin said the Reserve Bank will likely remain "cautious and watchful" given the one-off factors.

He noted that the fact the Reserve Bank's so-called "sectoral factor model", which estimates the common component of inflation in the CPI basket, the tradable basket, and the non-tradable basket, remained steady at 1.5 per cent versus the prior quarter "shows that a lot of those surprises and movements were due to idiosyncratic factors rather than being a broad theme".

The kiwi traded at 54.93 British pence versus 54.90 pence Wednesday. The kiwi was at A93.70c from 93.59c and fell to 4.8439 Chinese yuan from 4.8470 yuan. It was at 65.58 euro cents from 65.69 cents and at 76.65 yen from 76.49 yen.

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