Inflation in New Zealand has risen to the fastest pace in a decade, Reuters reported

© Reuters File Photo: Shoppers at a mall in Wellington, New Zealand, July 16, 2020. Photo taken on July 16, 2020.

Written by Praveen Menon

WELLINGTON (Reuters) – New Zealand’s consumer price index (CPI) rose 2.2% in the third quarter, beating expectations and rising at the fastest pace in a decade driven by housing-related costs and other supply constraints, data released Monday showed.

Statistics New Zealand said in a statement that the CPI rose 2.2% in the last quarter of September to 1.3% in the second quarter, the largest quarterly movement since growing 2.3% in the December quarter of 2010.

Annual inflation rose to 4.9% from 3.3% in the previous quarter, the largest annual movement in more than a decade.

The data outperformed analysts’ expectations and the Reserve Bank of New Zealand’s (RBNZ) forecast in a Reuters survey, which both boosted quarterly inflation to 1.4%, raising annual inflation to 4.1%.

Statistics New Zealand said in its statement that the main drivers were housing-related costs, such as new house construction and local authority rates.

Vegetable prices were the second major driver, including transportation costs and fuel prices. Auckland, the largest city in New Zealand, has been on lockdown since mid-August to prevent an outbreak of the delta variant of coronavirus.

The New Zealand dollar jumped and touched 7 0.7103, as traders expected the central bank to tighten its monetary policy further in response to higher-than-expected inflation.

The RBNZ raised rates earlier this month, and signaled a tightening, as it looks to keep inflation close to the 1-3% range of its target and cool the red-hot housing market.

We expected the RBNZ hiking rate to continue despite the Auckland lockdown, ”said Ben Woody, an economist at Capital Economics.

“But the strength of consumer prices in Q3 will definitely push the bank towards a more aggressive hiking cycle,” he said.

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