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The Reserve Bank meets next week to issue its OCR decision with earlier expectations being the first rate rise to come in March.
However, ANZ chief economist Cameron Bagrie said yesterday: ''We're now calling a January OCR hike. We believe the OCR needs to be lifted in January. The corollary to moving earlier is the bank will have to do less tightening later on, mitigating the potential for the New Zealand dollar to overshoot''.
The New Zealand dollar rose 0.8% after Statistics New Zealand released its consumer price index result, the official measure of inflation.
Inflation in December rose 0.1%, lifting annual inflation to 1.6%, the highest result since the start of 2012.
It was the ninth successive result below 2%.
The kiwi rose as high as US83.28c from A82.66c, before trading down.
''The kiwi is up half a cent very quickly on that significant positive surprise of CPI,'' Imre Speizer, market strategist at Westpac Banking, said.
''The implication from that rise is the Reserve Bank will almost certainly be hiking rates in March. But it also raises the possibility it will start as early as January.''
Mr Bagrie said prices rose in eight groups monitored by Statistics NZ and fell in three, reflecting the spate of offsetting shocks hitting the economy.
However, much of the surprise behind the stronger than expected CPI was in a milder than expected fall in tradeable inflation.
Tradeable prices fell 0.5%.
The high dollar and competitive retail environment were continuing to dampen pricing pressures in the wider retail sector, he said.
In a survey of prices collected from retail outlets, Statistics NZ noted 15% of all quarterly items were either discounted or ''on special'' in the December quarter, the same proportion as a year ago.
But the distributional data provided a slightly less benign interpretation, Mr Bagrie said.
The price movements showed prices for 50% of items rose, the highest for a December quarter since the 2010 GST increases.
The portion showing price falls was the lowest since the third quarter in 2012.
''A strengthening retail outlook suggests we are likely to be past the low-point for annual tradeable inflation.''
With the economy strengthening and the Reserve Bank emphasising the importance of keeping future inflation anchored around the target mid-point of 1.5%, there was limited margin on OCR settings, he said.
''The January OCR decision is likely to be finely balanced.''
Central bank governor Graeme Wheeler had previously indicated he would start raising the OCR this year to head off the threat of future inflation as the Auckland and Christchurch property markets continue to bubble and as the Canterbury rebuild gathered momentum.
At a glance
• January OCR hike possible
• Inflation higher than expected at 1.6%
• Dollar rises as consumer price index surprises
• Geographically-based strengthening in construction costs