Inflation for the year to March landed slightly lower than many feared - but don't expect the Reserve Bank to hold back on rate hikes.
Annual consumer price inflation undershot expectations at 6.9 per cent but it still hit its highest level in more than 30 years, said ASB senior economist Mark Smith.
"Much of the downward surprise to our inflation pick looks to be due to timing and will likely reverse," he said.
"Increases in consumer prices look to be widespread, with the risk of high inflation becoming more entrenched."
Some economists had tipped the annual figure to come in as high as 7.4 per cent - the consensus of forecasts had it at 7.1 per cent.
Smith said it was uncertain whether today's figure would represent a peak for inflation.
"The bigger issue to us is not so much what the inflation peak will be, but how persistent the uptick in inflation is," he said.
"We expect annual CPI inflation to remain well above 5 per cent over all of 2022 and it may not be until 2024 that inflation falls below 3 per cent.
"We expect the RBNZ to move swiftly and deliver a 50bp hike in May."
ASB has pencilled in an OCR peak of 3.25 per cent in 2023. It is currently sitting at just 1.5 per cent.
"A significant chunk of the headline inflation figure continues to reflect the inflationary global environment, with tradables inflation reaching 8.5 per cent," said ANZ economist Finn Robinson.
"Not only has Covid continued to gum up global supply chains, but the Russian invasion of Ukraine has triggered massive commodity price volatility globally - alongside the tragic loss of life.
"As a small open economy, it's no wonder New Zealand has seen such strength in imported prices over the past year."
However, the real concern for the RBNZ was that domestic inflation pressures had continued to intensify, he said.
Non-tradables inflation lifted to 6 per cent.
Measures of core inflation calculated by Stats NZ now ranged from 3.9 per cent to 5.9 per cent - uncomfortably outside the RBNZ's 1-3 per cent target range, he said.
"And this domestic inflation is the kind that doesn't go away quickly."
The labour market was also set to tighten further this year, especially if the border opening led to a net outflow of people from New Zealand.
"That should see wage inflation take off over this year, providing even more persistence to the domestic inflation pulse, and necessitating ongoing interest rate hikes by the RBNZ."
ANZ also sees a 50-basis point hike coming next month.
The New Zealand dollar and bond yields fell in response to the data.
By midday, the kiwi was trading at US67.83c - down from US68.05c just before the release.
Two-year government bond yields dropped to 3.09 per cent from 3.14 per cent before the release, and 10-year yields eased to 3.47 per cent from 3.51.
"The market was going into this with fears of something in excess of 7 per cent, so it's natural to see some sort of mild downward spike in the kiwi," ANZ market strategist David Croy said.
"But the news is not good," Croy said.
"A 6.9 per cent reading is still not acceptable. It's just not as bad as some in the market may have feared."
Ben Udy at Sydney-based Capital Economics took a slightly more upbeat tone.
"We think inflation is now around its peak," he said.
"The Government's reduction in excise taxes has reduced petrol costs and should result in negative fuel inflation in Q2. What's more, as house prices are now falling, we think home-building inflation will ease before long."
Udy sees the OCR peaking at 3 per cent and argues the 1.8 per cent quarter on quarter rise "was broadly in line with the RBNZ's expectations, which reduces the likelihood of another 50 basis point hike in the OCR in May".
Jarden economist and investment strategist John Carran was also relatively optimistic.
"On balance we consider inflation pressures may come off more rapidly than many currently expect," he said.
"While annual inflation will remain relatively elevated for the rest of this year due to the lower level of prices last year, incremental quarterly easing of inflation combined with increasing signs of softening in the New Zealand economy could lead the RBNZ to take a more cautious approach in the second half of 2022."
Jarden sees the OCR reaching just 2.25 per cent by the end of this year, which is significantly lower than market expectations.
Food prices rose sharply in the quarter, up 3.1 per cent, influenced by fruit and vegetables (up 9.3 per cent) and grocery food (up 2.4 per cent).
Housing and household utilities rose 1.8 per cent, influenced by home ownership (up 3.5 per cent) and rentals (up 1.1 per cent).
Transport rose 3.3 per cent, influenced by private transport supplies and services (up 6.6 per cent) and partly offset by a fall in passenger transport services (down 9 per cent).
The 6.9 per cent annual increase follows an annual increase of 5.9 per cent in the December 2021 quarter.
Across the annual period, the most significant contributor increase in the CPI was housing and household utilities, which increased 8.6 per cent.
The area within housing and household utilities that contributed the most to this increase was the purchase of housing, up 18 per cent. Actual rentals for housing also contributed to this increase, up 4 per cent.
Transport was the second most significant contributor to annual inflation, up 14 per cent.
The largest driver of this was a 32 per cent increase in petrol price.