The milestone, back into the target range, has economists picking the Reserve Bank will keep the official cash rate (OCR) at its record low 1.75% during 2017, with no rises.
The New Zealand dollar rose to a two and a-half-month high after inflation climbed back into the Reserve Bank’s target band.
ASB chief economist Nick Tuffley noted the 1.3% annual inflation rate was higher than analysts’ expectations, and also the Reserve Bank’s.
Mr Tuffley expected the Reserve Bank to wait for inflation to rise further within its target band before any OCR rate rises were considered.
"Further OCR cuts are well off the table, barring some major development. But OCR hikes this year, as priced into the wholesale interest rates, still seem premature," Mr Tuffley said.
However, despite the official cash rate being cut to the record low of 1.75% last November, longer term mortgage rates have risen during the past six months, with a flurry of increases by the banks in recent weeks, NZME reported.
The only rate to fall was the average floating rate, which was down 14 basis points to 5.62%.
Fixing a $300,000 mortgage for two years will cost borrowers more this year than it did last year.
Figures supplied by rate tracking firm Canstar show the average interest rate for a two-year fixed term has increased from 4.74% to 4.87%.Although that was only a 13 basis points jump, on a $300,000 mortgage over a 30-year term paid monthly it will now cost $288 more a year to service.
The difference is even greater for longer fixed terms which have risen at a faster rate than shorter fixed terms. Fixing a $300,000 mortgage for three years is now $420 a year more in principal and interest while fixing for five years will cost $816 a year more to service compared with fixing for five years in February last year.
The Canstar figures show there was no change in the average rate for one-year terms.
Statistics New Zealand prices senior manager Jason Attewell said its data showed it was the first time in more than two years that price increases for household purchases had been measured at higher than 1%.
"Higher prices for petrol, air fares, and new house builds were partly offset by lower prices for food and furniture," Mr Attewell said.
Petrol prices made the largest upward contribution for the quarter, up 4.1%, with the average price for a litre of 91 octane petrol in the December 2016 quarter at $1.82, up from $1.75 in the September quarter.
He said housing-related prices continued to increase, up 3.3% in the December 2016 year. Prices had increased for newly built houses, excluding land, up 6.5%, while housing rentals were up 2%.
"Housing-related prices in Auckland increased more than the national average, with new houses up 8.2% and rents up 3.2% from a year earlier," Mr Attewell said.
