New Zealand consumer prices rose at their fastest annual pace in five-and-a-half years in the first quarter of 2017 as rising fuel prices, a tax on cigarettes and tobacco and the hot housing market stoked inflation.

The kiwi dollar rose to 70.34 US cents from 70.03 immediately prior to the release.

The consumers price index rose 1 per cent in the three months to March 31 for an annual pace of 2.2 per cent, Statistics New Zealand said. It was highest annual increase since the September 2011 quarter and also marked the first time inflation has hit the mid-point of the central bank's 1 per cent-to-3 per cent target range since that period.

Economists had tipped the CPI to lift 0.8 per cent in the first three months of the year, for an annual rate of 2 per cent, according to the median in a BusinessDesk poll.


The central bank, meanwhile, had forecast inflation of 0.3 per cent in the first quarter for an annual rise of 1.5 per cent. It wasn't expecting inflation to be 2 per cent until 2019, according to its latest forecast.

"Rising petrol prices along with the annual rise in cigarette and tobacco tax lifted inflation," prices senior manager Jason Attewell said. "Petrol prices in New Zealand are closely linked to global oil prices, and cigarettes and tobacco taxes rise in the March quarter each year."

Petrol prices rose 4.1 per cent in the quarter and were up 12 per cent on the year. A slump in oil prices and resilient New Zealand dollar has kept a lid on headline CPI, however, inflation pressures are emerging as the dollar loses ground and fuel prices rise.

Alcoholic beverages and tobacco prices rose 4 per cent on quarter in the March quarter, influenced by a 9.7 per cent increase in cigarette and tobacco prices. The average price of 25 cigarettes was $31.60 in March versus $28.82 in December last year, StatsNZ said. They were up 3.9 per cent on the year.

The quarterly rise in inflation was also boosted by higher food prices, which rose 2.2 per cent on the quarter on the back of a 16 per cent jump in the price of fruit. Food prices were up 1.6 per cent on the year.

Cheap oil in recent years and the tepid inflation environment has made life difficult for New Zealand's Reserve Bank, which delayed cutting interest rates too aggressively for fear of stoking demand for an already hot property market. The central bank kept interest rates at a record low 1.75 per cent in March and reiterated that they are expected to stay at that level "for a considerable period".

Today's data showed that housing-related prices continued to increase, up 0. 6 per cent on the quarter and 3.3 per cent on the year. Prices for new housing rose 1 per cent in the March quarter for an annual increase of 6.7 per cent. Rental prices were more sedate, with a quarterly increase of 0.8 per cent for an annual gain of 2.3 per cent.

Local body rates were up 0.1 per cent on the quarter and were up 3.2 per cent on the year while refuse disposal and recycling was up 2.2 on the quarter and 6.2 per cent on the year. Household energy, which includes electricity, gas and solid fuels inched up 0.1 per cent on the quarter and 2.3 per cent on the year.


Tradeables inflation, which includes goods and services that compete with international rivals, rose 0.8 per cent in the quarter and 1.6 per cent on the year. Non-tradeables inflation, which focuses on domestic inflation, rose 1 per cent on the quarter and was up 2.5 per cent on the year.