New Zealand's inflation accelerated in the third quarter, reaching the top end of the Reserve Bank's 1-3% target range, though core price pressures have eased and policymakers have signaled further policy easing.

Government data released on Monday showed that the consumer price index (CPI) rose 3% year-on-year, up from 2.7% in the second quarter, in line with expectations. The CPI rose 1% month-on-month, exceeding expectations for a 0.9% increase.

Given widespread spare capacity in the economy, accelerating inflation is unlikely to prevent the Reserve Bank of New Zealand from easing policy. Earlier this month, the central bank said it expects inflation to slow toward 2% by mid-2026 and hinted at a possible rate cut before the end of this year.

"The Reserve Bank of New Zealand can be reassured that despite the rise in headline inflation, underlying price pressures are, in fact, contained," said Abhijit Surya, senior economist at Capital Economics in Singapore. "Given the deeply negative output gap, inflation is likely to remain below the midpoint of the Bank of New Zealand's target next year."

While the rise in inflation is primarily driven by one-off and seasonal factors, the Bank is focusing on trends in core indicators.

The report showed that non-tradable goods inflation—a closely watched measure of domestic price pressures—slowed to 3.5% in the third quarter from 3.7% in the previous quarter. This was in line with the Reserve Bank of New Zealand's August forecast. Another measure, core inflation, excluding food, energy, and fuel, fell to 2.5% from 2.7%.