WELLINGTON (Reuters) - New Zealand's consumer price index (CPI) rose by an annual 1.5 percent in the second quarter, falling short of expectations and briefly pushing down the local currency, but was seen as unlikely to sway the central bank from keeping its rates on hold.
The CPI rose 0.4 percent in the three months to the end of June, in line with central bank forecasts but a touch short of the 0.5 percent predicted on average by economists, data from Statistics New Zealand showed on Tuesday.
The below-expectations outcome initially drove the New Zealand dollar <NZD=D4> down to $0.6756 from $0.6771 but the currency quickly recovered before rising to $0.6785.
Tuesday's data suggests inflation is on track to meet the Reserve Bank of New Zealand's (RBNZ) target midpoint of 2 percent after sinking close to the bottom of its band at 1.1 percent in the first quarter.
Nevertheless, the RBNZ was thought likely to maintain its cautious stance for some time to come as it works to ensure inflation stabilises around 2 percent over time.
"We continue to expect the RBNZ to tread carefully until it sees evidence of widespread pricing pressures building," said ASB Chief Economist Nick Tuffley.
"Although higher tradable inflation (petrol prices) looks set to lift headline CPI back up towards 2 percent by the end of the year, there remains elusive evidence yet of a sustained lift in underlying inflation pressures," he added.
The main driver of inflation was rising housing costs with rents up an annual 2.5 percent and construction of new dwellings costing 3.9 percent more.
Higher prices for petrol, which rose 2.3 percent, were also a key contributor, but the RBNZ has signalled in the past it would look through factors heavily influenced by volatile global commodity markets as it focuses on core inflation.
The RBNZ slashed rates to a record low of 1.75 percent in 2016 and has signalled it will keep them there until well into 2019. The bank will announce its next rates decision on August 9.
(Reporting by Charlotte Greenfield; Editing by Eric Meijer)
