Latest official figures show the pace of consumer price rises has picked up, putting inflation back above 1 percent for the first time in two years.
Reserve Bank governor Graeme Wheeler. Financial markets are picking the bank will raise interest rates this year but economists predict that will happen in 2018. Photo: RNZ / Rebekah Parsons-King
The Consumer Price Index increased 1.3 percent in the year to December.
"This is the first time in over two years that price increases for households purchases have been over 1 percent," Statistics NZ prices senior manager Jason Attewell said. "Household price inflation is up from a historical low of 0.1 percent for the December 2015 year."
The jump was partly due to falling oil prices in late 2015 falling out of the calculation.
Despite higher quarterly fuel prices, petrol and international airfares were cheaper than a year ago.
Prices for tradeable goods and services were 0.1 percent lower in 2016.
Non-tradeable goods and services rose 2.4 percent, driven by further rises in housing related costs.
Construction costs for new houses, excluding land, jumped 6.5 percent - its highest level since September 2005.
Rents rose 2 percent.
"Housing related prices in Auckland increased more than the national average, with new houses up 8.2 percent and rents up 3.2 percent from a year earlier," Mr Attewell said.
Overall, housing related costs rose 3.3 percent.
Quarterly prices up
Consumer prices increased 0.4 percent in three months to the end of December, compared to 0.3 percent in the previous quarter.
The main contribution came from higher petrol prices, air fares and construction costs for new houses which offset cheaper food and furniture, Statistics NZ said.
Petrol prices rose 4.1 percent. The average price of a litre of 91 octane petrol was $1.82 in the December quarter, up from $1.75 in the previous quarter.
After adjusting for seasonal effects, inflation rose 0.7 percent.
Inflation within target
The inflation increase was more than economists had expected. The dollar rose nearly half a cent on the news to 73 US cents.
Inflation is now back inside the Reserve Bank's 1-3 percent target band.
But some analysts are wary about picking strong inflation gains from here.
"With imported inflation remaining modest, headline inflation is still expected to linger in the lower part of the [Reserve Bank] target band for some time," Westpac senior economist Satish Ranchhod said.
Financial markets are picking the central bank will start hiking interest rates this year from the historic low of 1.75 percent. Economists think that's more likely to happen next year.
