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Inflation hits five-and-a-half year high

NZ Newswire logoNZ Newswire 5 days ago Rebecca Howard

New Zealand consumer prices have risen at their fastest annual pace in five-and-a-half years in the first quarter of 2017 as rising fuel prices, a tax on cigarettes and tobacco and the hot housing market stoked inflation.

The kiwi dollar rose to US70.34 cents from US70.03c immediately prior to the Statistics NZ announcement on Thursday morning.

The consumers price index rose 1 per cent in the three months to March 31 for an annual pace of 2.2 per cent.

It was highest annual increase since the September 2011 quarter and also 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 that period.

Economists had tipped the CPI to lift 0.8 per cent in the first three months of the year, for an annual rate of 2 per cent, according to the median in a BusinessDesk poll.

The central bank, meanwhile, had forecast inflation of 0.3 per cent in the first quarter for an annual rise of 1.5 per cent. It wasn't expecting inflation to be 2 per cent until 2019, according to its latest forecast.

"Rising petrol prices along with the annual rise in cigarette and tobacco tax lifted inflation," prices senior manager Jason Attewell said.

Petrol prices rose 4.1 per cent in the quarter and were up 12 per cent on the year. A slump in oil prices and resilient New Zealand dollar has kept a lid on headline CPI, however, inflation pressures are emerging as the dollar loses ground and fuel prices rise.

Cheap oil in recent years and the tepid inflation environment has made life difficult for New Zealand's Reserve Bank, which delayed cutting interest rates too aggressively for fear of stoking demand for an already hot property market.

The central bank kept interest rates at a record low 1.75 per cent in March and reiterated that they are expected to stay at that level "for a considerable period".

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