The quarterly rise is likely to spike the attention of the Reserve Bank, which is targeting monetary policy to contain inflation in a 1% to 3% range, but its concerns should be muffled by the housing sector remaining relatively subdued.
While consumers paid higher prices for food, electricity and council rates annually, the biggest contributor to the lower annual rate came from petrol and airfares declining, according to Statistics New Zealand prices manager Chris Pike.
The consumer price index (CPI) is the official measurement of inflation using the price change of goods and services purchased by households.
"In the year to the September 2009 quarter, food prices increased 5.4%, accounting for well over half of the CPI annual increase of 1.7%. Electricity prices rose 4.5% and local authority rates rose 6.6%," he said.
ASB chief economist Nick Tuffley said the quarterly inflation was "significantly stronger than anticipated", and part of the surprise was on the non-tradeable inflation front - which measures domestic consumer prices excluding imported prices.
"The lift in [quarterly] inflation will be an unpleasant surprise for the Reserve Bank, though the mitigating factor is housing remains subdued," he said in a statement yesterday.
Components in the key housing sector; housing construction, maintenance and rents were very weak amid all the inflation data, but Mr Tuffley cautioned that with house prices "creeping up", so too were real estate agent fees, an area in which the housing market was starting to lift inflation.
"During the housing boom these components were the bug-bear of the Reserve Bank, but they are likely to contain inflation a while longer given subdued construction levels," he said.
BNZ chief economist Stephen Toplis was surprised at the 1.3% quarterly figure, having expected 0.8%.
"We still think inflation will fade as 2010 progresses," he said.
Because of plenty of spare production capacity in the economy and disinflationary impact of the rising New Zealand dollar, he expected annual inflation next year at 1.4% - double the earlier 0.7% forecast; with a 2011 inflation forecast at 2.1%.
Mr Tuffley said a year ago inflation was running just beyond 5%, driven by rising fuel prices at the time, and for the next six months inflation was expected to rise through 2% to "settle" around 2.5%, again with a boost from fuel prices.
However, during 2010 weak figures in construction, slow wage growth and the rising strength of the New Zealand dollar were expected to dampen inflation back to 1.5% before the economic recovery in 2011 took hold and inflation returned to about 2.5%.
Inflation
Annual inflation increases/decreases
- Transport prices fell 5.5%
- Petrol down 19%
- International air transport down 15.1%
- Diesel down 38.8%
- Food prices up 5.4%
- Electricity up 4.5%
- Local authority rates up 6.6%
