New Zealand inflation rose at its fastest quarterly pace in two years as petrol prices increased and out-of-season vegetables were more expensive, lifting the annual pace back within the Reserve Bank's target band for the first time in a year.

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, according to Statistics New Zealand. That was in line with expectations in a Reuters survey of economists.

The annual pace of inflation accelerated to 1.4 per cent, back within the central bank's target band of between 1 per cent and 3 per cent, from 0.7 per cent in June, the slowest pace in 14 years, and slightly ahead of expectations.

The increased pace was underpinned by a 5.6 per cent lift in petrol prices, the biggest quarterly gain since March 2011, and a 20 per cent jump in vegetable prices due to more expensive lettuce, tomatoes, capsicum and broccoli. Local body rates increased 3.8 per cent as councils set new rates, while prices for newly built houses increased 0.9 per cent.


Those increase offset cheaper clothing and footwear, where prices fell 0.8 per cent in the quarter.

The tepid pace of inflation has meant the Reserve Bank hasn't had to hike the official cash rate 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.

The New Zealand dollar rose to 83.94 US cents from 83.75 cents immediately before the 10:45am release of the report.

Tradable inflation, which includes goods and services facing international competition, rose 1.2 per cent in the September quarter, and fell 0.5 per cent on an annual basis. Non-tradable inflation rose 0.7 per cent in the quarter and was up an annual 2.8 per cent.

Prices for housing and household utilities rose 3.2 per cent on an annual basis, with newly built housing up 4.1 per cent, property maintenance services increasing 5.1 per cent and refuse disposal and recycling prices increasing 8.3 per cent. Dwelling insurance prices have increased 19 per cent in the year ended Sept. 30 on higher premiums from the spate of earthquakes in recent years.

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.

Food prices rose 1.7 per cent in the quarter on the more expensive vegetables, and were up 0.8 per cent on an annual basis.

Petrol prices increased 3.7 per cent on an annual basis, underpinning a 0.9 per cent lift in transport group prices.


Christina Leung, an ASB economist, said the 0.9 per cent increase was slightly below the bank's expectations.

"From our perspective, the surprise was in slightly weaker than expected tradable inflation, reflecting continued discounting of household goods, particularly clothing and footwear, as well as furniture."

Non-tradable inflation was in line expectations, Leung said.

"Although the 0.9 per cent increase in construction costs was softer than we expected, there are signs construction cost inflation is broadening beyond Canterbury.

"In particular, construction costs in Auckland accelerated in quarter three with a 1.0 per cent increase in the region over the quarter. Construction costs increased 1.7 per cent in Canterbury over the quarter."