New Zealand consumer prices rose 3.0 percent on the year in the three months to September, picking up from an increase of 2.7 percent in the three months to March. This is matches the consensus forecast takes headline inflation to the top of the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent after it had been within that range for four consecutive quarters. The index advanced 1.0 percent on the quarter after increasing 0.5 previously, just above the consensus forecast of 0.9 percent.

The increase in headline inflation in the three months to September was largely driven by a further increase in food price inflation from 4.2 percent to 4.6 percent, Clothing and footwear, motor vehicles, household energy, and accommodation services also recorded stronger increases in prices.

The RBNZ reduced the official cash rate by 50 basis points to 2.50 percent at its most recent meeting earlier in the month and have now lowered policy rates by a cumulative 300 basis points over their previous nine meetings. In the statement accompanying this decision, officials noted that inflation was around the top of their target range of 1 percent to 3 percent but expressed confidence it will return to around the mid-point of that range early next year. Officials also advised also advised that if medium-term inflation pressures ease as they anticipate, they remain"open" to cut the cash rate further in coming meetings.

The consensus looks for CPI up 0.9 percent on the quarter and up 3.0 percent on year in Q3 after increases of 0.5 percent on quarter and 2.7 percent on year in Q2. Food prices and energy costs lifted in inflation in Q3 while housing costs have been moderating.

The consumer price index (CPI) measures the changing price of a fixed basket of goods and services purchased by New Zealand households. The selection and relative importance of the goods and services in the CPI basket represents the overall expenditure pattern of New Zealand households.

The aim of the CPI is to measure price changes of the same sample of products at each outlet over time. When there is a change in the size or quality of any of the goods or services in the basket, an adjustment is made to ensure that the price change shown in the CPI is not affected by the change in size or quality.

The CPI represents $88.9 billion spent on goods and services by New Zealand households, at June 2011 quarter prices. This is based on information from the 2009/10 Household Economic Survey and other sources. The CPI has an index reference period of the June 2006 quarter equal to 1000.

A price index measures the change in price between time periods for a given set of goods and services. It summarizes a set of prices for a variety of goods and services collected from a number of outlets. The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

The CPI is used to help set monetary policy and for monitoring economic performance. It is used by the government to adjust New Zealand Superannuation and unemployment benefit payments once a year, to help ensure that these payments maintain their purchasing power. Employers and employees use the CPI in wage negotiations.