Accelerating New Zealand inflation is firming expectations for an early rate rise next year, with consumer prices ending a year in which the annual pace was slower than the Reserve Bank's target.
Government figures show that the consumers price index increased 0.9 per cent in the three months ended September 30, its fastest pace since June 2011 and accelerating from a 0.2 per cent increase in June.
The annual pace of inflation accelerated to 1.4 per cent, back within the central bank's target band of between one and three per cent, from 0.7 per cent in June, the slowest pace in 14 years, according to Statistics New Zealand.
"It now looks more clear the last quarter print was the bottom of the cycle," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland.
"It keeps the pressure on the Reserve Bank to hike by March."
The tepid pace of inflation has meant the Reserve Bank hasn't had to raise the official cash rate (OCR) from a record-low 2.5 per cent as a bubbling property market fails to spill over into increased consumer spending.
The central bank has been reluctant to lift the key rate as it might stoke investors to buy the kiwi, further strengthening an "over-valued" currency, though it has since signalled plans to raise the OCR next year.
Mr Speizer said the turnaround in the tradable component of inflation illustrated the effect of a strong currency on lowering imported prices was a temporary one, and that consumer prices are set to rise from here.
Tradable inflation, which includes goods and services facing international competition, rose 1.2 per cent in the September quarter, from a 0.5 per cent contraction in June.
The Reserve Bank is watching the cost of the country's construction boom in Auckland and Christchurch closely to see whether wage growth in those areas will spill over into wider inflation.
Prices for newly built houses increased 0.9 per cent in the quarter, taking the annual pace to 4.1 per cent.
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