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New Zealand inflation surges at fastest pace in over a decade

Published 10/17/2021, 05:58 PM
Updated 10/17/2021, 06:40 PM
© Reuters. FILE PHOTO: Shoppers are seen at a mall in Wellington, New Zealand July 16, 2020. Picture taken July 16, 2020. REUTERS/Praveen Menon

By Praveen Menon

WELLINGTON (Reuters) -New Zealand's Consumer Price Index (CPI) rose 2.2% in the third quarter, beating expectations and surging at the fastest pace in over a decade driven by housing-related costs and other supply constraints, data released on Monday showed.

CPI rose 2.2% in the quarter ending September from a rise of 1.3% in the second quarter, the biggest quarterly movement since a 2.3% rise in the December 2010 quarter, Statistics New Zealand said in a statement.

Annual inflation surged 4.9% compared to a rise of 3.3% in the previous quarter, also the biggest annual movement in more than a decade.

The data beat analysts' expectations in a Reuters poll and forecasts of the Reserve Bank of New Zealand (RBNZ), both of which put the quarterly inflation rise at 1.4%, lifting annual inflation to 4.1%.

The main drivers were housing-related costs, such as construction of new houses and local authority rate, Statistics New Zealand said in its statement.

Vegetable prices was the second major driver along with transport costs and fuel prices. New Zealand's largest city, Auckland, has been in lockdown since mid-August to stamp out an outbreak of the Delta variant of coronavirus.

The New Zealand dollar jumped, touching $0.7103, as traders anticipated more monetary policy tightening by the central bank in response to the higher than expected inflation.

RBNZ hiked rates earlier this month, and signalled further tightening to come, as it looks to keep inflation near its target 1-3% range, and to cool a red-hot housing market.

© Reuters. FILE PHOTO: Shoppers are seen at a mall in Wellington, New Zealand July 16, 2020. Picture taken July 16, 2020. REUTERS/Praveen Menon

"We had already expected the RBNZ to continue hiking rates despite the Auckland lockdown," said Ben Udy, an economist at Capital Economics.

"But the strength in consumer prices in Q3 will surely nudge the Bank towards an even more aggressive hiking cycle," he said.

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