The Reserve Bank had another firm indicator that the domestic economy is strengthening with the annual inflation rate coming in higher than what it had expected, and not even the high New Zealand dollar could hold pricing pressures down.
Official figures show the Consumer Price Index, which is a key measure of the cost of living, rose to 0.9% in the September quarter, with higher prices for petrol and vegetables contributing to more than half of the rise.
On an annual basis the inflation rate rose 1.4%, which is within the Reserve Bank's target band of 1% - 3%.
The central bank was anticipating a 1.2% increase.
Westpac chief economist Dominick Stephens says construction cost inflation is building momentum.
"Our view is that the construction sector will ramp up, stimulate the economy, drive it beyond its productive capacity, that will put pressure on inflation and it will force the Reserve Bank to lift interest rates."
Mr Stephens says it's a slow process and it's not likely there will be enough pressure to force the Reserve Bank to lift interest rates until March 2014.
He's predicting inflation will not get to 2% until December 2014, but he says the process is on track.
Mr Stephens says inflation's been low over the past year mainly due to the strong New Zealand dollar which reduces the price of imported goods and services, so the price of clothing, footwear and even food have been very subdued and even falling for most of the last year which has kept inflation down.
He says the exchange rate remained high but it did not seem to suppress inflation as much as it had in previous quarters.
Mr Stephens says that means the high exchange rate is a waning force in terms of keeping inflation down, as the exchange rate's impact wanes in the future and as the construction sector picks up it's likely that inflation is going to rise.
