Inflation hit 4% in the year-ended June, as measured by Statistics New Zealand's consumer price index (CPI), the official measure favoured by the central bank.
The obvious items of petrol prices (up 25.8%), food prices (up 8.2%) and electricity prices were the main contributors to inflation now running at 1% above the Reserve Bank's 1%-to-3% policy target range.
Inflation is now forecast to reach 5% later this year, not dropping below 3% until September next year and not reaching the 2% mid-point of the target range until a year later.
This is an extraordinarily unsettling environment for the Reserve Bank, but one that is creating hardship in the community.
Given the heat of inflation, it appears the Reserve Bank will hold off on a rate cut next week, aiming to reduce rates on September 11, just before the start of the election campaign.
Bank of New Zealand research economist Stephen Toplis said much of the financial market focus yesterday was on the timing of the first rate cut.
"The bigger message for all and sundry was the confirmation that inflation was squeezing the hell out of the average Kiwi householder.
"Huge drops in the cost of phone, AV [audio visual] and computer equipment might hold the CPI back but don't help much those facing 20% plus increases in dairy produce and petrol."
The interest-easing cycle was about to begin and it should be a long one as monetary policy was called upon to drag the New Zealand economy from its current malaise, he said.
Westpac chief economist Brendan O'Donovan said it was always tempting to remove some items, like petrol, from headline inflation to get an "underlying picture".
Removing petrol from the latest CPI would have kept inflation at 2.7%.
"But how do you decide what to take out and what to leave in?
"Should we remove the jump in electricity prices this quarter or remove the downward effect on annual inflation from the government subsidy changes on health and education last year?"
The current rate of inflation was mostly of concern in so far as it polluted inflation expectations, he said.
Mr O'Donovan was the most pessimistic of economists polled by the Otago Daily Times, predicting inflation would hit 5.5% in September and average 4.7% over the next 12 months.
However, he was the only one to have forecast 4% inflation for June last week, with others picking it to come in at 3.8%.
Increasing costs and prices were hurting businesses and consumers.
An aggressive easing in monetary conditions could unleash even more inflation - hardly the tonic required, he said.
"Consider a 100-plus basis point easing by December with the dollar falling by big figures.
"Few would welcome the resulting $2.45 per litre at the petrol pump, let alone higher prices for food and other traded goods.
"Annual tradeable inflation has already hit 4.8% without a major fall in the dollar."
ASB Bank chief economist Nick Tuffley said the Reserve Bank had made a bold call that the OCR would be cut later this year.
Those proposed rate cuts were based on the assumptions that commodity prices would stop rising, inflation expectations would remain anchored and that lower activity would translate to lower non-tradeable inflation.
"A lot has happened since June, but not the combination of events that would make a central bank happy."
Since the June monetary policy statement projections were finalised, oil prices had increased by almost 10%, adding 18c a litre to the price of fuel at the pump and clearly violating one of the key assumptions, Mr Tuffley said.
The growth outlook had also deteriorated, with consumer and business confidence plummeting in June.
"The current mix of tight monetary conditions, rising costs and waning demand are just too much to take."
