Data out this week is expected to show inflation in 2021 ran at its highest level in over 30 years.
Market expectations are for a 1.3 per cent rise in the Consumers Price Index for the December quarter, taking the rate for the December year up to 5.8 per cent.
ANZ expects Thursday's CPI data to show annual rate of inflation accelerated to 6.0 per cent, up from 4.9 per cent in the third quarter of last year.
"The actual number is highly uncertain, but what's clear is that the inflation dragon, which has been asleep for decades, has well and truly awoken," ANZ said in a commentary.
ANZ said aggressive action by the Reserve Bank would be needed for inflation to be tamed.
The bank said it was "very likely" the CPI would be stronger than the Reserve Bank's forecast of 5.7 per cent.
"And whenever Omicron arrives in the community, it's likely to cause similar levels of disruption as overseas – hurting growth but giving inflation yet another boost at the same time as inflation expectations have drifted steadily higher, above the Reserve Bank's target," it said.
ANZ this week caught the market off-guard when it changed its official cash rate (OCR) call.
It now expects the OCR to be lifted in steady 25 basis point steps to a peak of 3 per cent by April 2023, having previously a forecast peak of 2 per cent.
The bank's change of stance saw wholesale interest rates - which have tended to lag offshore gains this year - spike.
By Friday the two-year swap rate was at 2.34 per cent - up 15 basis points over the week.
Earlier in the week, the market paid close attention to NZIER's December quarter survey, which pointed to building inflation pressures.
Harbour Asset Management fixed income and currency strategist Hamish Pepper said the market was fixated by inflation.
Likewise, December labour data due in the following week would also be closely followed.
Westpac said the country was in the midst of "a perfect storm" of inflation pressures, but that much of the CPI's increase will be a result of offshore factors.
"Disruptions to global manufacturing chains have resulted in shortages of many consumer goods and production inputs," the bank said.
"The resulting upwards pressure on prices has been compounded by increases in international transport costs, with both shipping rates and oil prices rising rapidly over the past year.
"Domestic cost pressures are also on the rise. Most notably, many New Zealand businesses are struggling to source workers, and wage costs have been pushing higher as businesses compete to attract staff."
Westpac said the expected rise in inflation would not just be due to supply-side cost pressures.
Demand in some key parts of the domestic economy has also been running hot - residential construction is booming.
"We've also seen households spending up on items like furnishings and recreational equipment.
"This strength in demand has meant that businesses have greater scope to pass on cost increases into final prices, rather than taking a hit on margins," it said.
"Putting this all together has left us with a potent cocktail of cost-push and demand-pull inflation pressures that is resulting in widespread price rises," Westpac said.
Consistent with that, measures of underlying or "trend" inflation are also likely to continue pushing higher this quarter, it said.
ASB expects an annual rate of 6.1 per cent.
"What's more, annual CPI inflation is likely to firm over early 2022 and remain well outside the (Reserve Bank's) 1-3 per cent target range until at least 2023," ASB senior economist Mark Smith said.
"High near-term inflation and stretched capacity warrant further OCR hikes, the degree of which will largely depend on the (still highly uncertain) medium-term inflation outlook."
The bank said there had been a relentless stream of price and cost rises from a multitude of domestic and external sources.
"After peaking at close to 6.3 per cent in early 2022, annual CPI inflation is then expected to cool but remain above the 1-3 per cent inflation target until late 2023."
Smith said risks to the bank's December quarter CPI forecast were tilted to the upside "and we see the risk of high inflation being more persistent, potentially threatening the Reserve Bank's inflation mandate and prompting a more aggressive path of OCR tightening.
"For now, we expect a measured pace of 25 basis point hikes and a 2 per cent OCR peak in late 2022, but events can change quickly.
"The Reserve Bank looks to have an inflation problem that they need to deal with."
The central bank's next monetary policy statement, due on February 23, will be highly anticipated by the market as it grapples with levels of inflation not seen since 1990.
The bank's official cash rate sits at 0.75 per cent, having been raised by 25 basis points on November 24.