Inflation has hit its highest level in a decade as consumer prices rose 2.2 percent in the three months ended September, taking the annual rate to 4.9 percent.
The surge in housing, transport, food, and recreational goods demolished analysts' forecasts of a 1.4 percent rise in consumer prices for the quarter, and an annual rate of 4.1 percent.
Inflation pressures were broadbased with 10 of the 11 price groups used by Stats NZ rising over the quarter, with the strongest lift in housing-related costs, such as building new houses, rents, rates, and utility prices.
"Both supply chain challenges and high demand are pushing up the cost of building houses," Stats NZ's consumer prices manager Aaron Beck said.
"Construction firms reported that it is hard to get many materials needed to build a house, and that there are higher labour and administration costs."
Prices for construction of new houses were up 4.5 percent for the quarter, and 12 percent for the year.
But prices in other sectors were also surging, transport rose 4.2 percent on the back of higher fuel, used car prices, and public transport; food rose 2.7 percent driven by fresh food and grocery prices; recreational equipment, commercial accommodation, clothing and footwear were also notable rises.
The annual rate was the highest since mid-2011 after the goods and services tax was increased to 15 percent.
The data showed that there was a sturdy level of domestic inflation, known as non tradeables, which increased 1.8 percent for the quarter to be 4.5 percent than a year ago, while imported inflation such as fuel, tradeables, rose 2.8 percent for the quarter and 5.7 percent annually.
Return of the 'inflation beast'
Kiwibank chief economist Jarod Kerr said the "inflation beast" is back.
"The details of the report show a broad-based surge in consumer prices, with some persistence to worry about. The inflation rate is expected to remain elevated because cost pressures will persist and demand remains strong.
"Underlying demand in the economy is solid. Alongside supply side constraints - including the challenge among firms in sourcing labour and materials - we have a recipe for heated prices," Kerr said.
ASB chief economist Nick Tuffley said the Reserve Bank (RBNZ) would be wary about the prospect of higher inflation in the short term and signs of a broadening front in inflationary pressures, which would result in inflation sitting above 5 percent by the end of the year.
The concern would be about inflation stoking higher wage rates and becoming more entrenched. That would inevitably lead to the RBNZ raising its official cash rate (OCR) to damped demand.
"Current expectations are for the Reserve Bank to raise the official cash rate again in November and then several rises next year to settle at around 1.5 percent."
The RBNZ lifted the OCR on 6 October, for the first time in seven years, by a quarter of a percentage point to 0.5 percent.