Annual inflation is expected to rise to its highest level in three decades, driven by rising fuel and housing costs, and a tight labour market.

The consensus among economists is for the a 1.2 percent rise in the consumer price index for the three months ended December, taking the annual rate to 5.6 percent from 4.9 percent at the end of the September quarter, when the data is released on Thursday.

But there are forecasts for the annual rate to hit 6.2 percent, the highest since mid-1990, or mid-1988 when adjusted for GST increases, according to the ASB bank.

"After peaking at close to 6.3 percent in early 2022, annual CPI inflation is then expected to cool but remain above the 1 to 3 percent inflation target until late 2023," ASB senior economist Mark Smith said.

The ANZ bank was also forecasting annual headline inflation to hit 6 percent.

Their forecasts compare with the Reserve Bank's (RBNZ) November prediction for annual inflation to peak at 5.7 percent by March.

"The bigger issue is how persistent the uptick in inflation will be," Smith said.

"We have long been mindful of upside risks to medium-term inflation and the Q4 Quarterly Survey of Business Opinion did not make for comforting reading for both the near and medium-term inflation outlook."

Costs continue to rise

Smith said the last quarter of 2021 probably saw price rise across most sectors.

Transport prices increased 5.2 percent and petrol prices were up 10 percent.

Rising prices for raw materials and stretched capacity should result in big increases in construction costs, Smith said.

The traditional seasonal fall in fresh fruit and vegetables would offset higher prices for other foods, he said.

BNZ senior economist Doug Steel said manufacturing was among the sectors feeling the heat, although it expanded last month.

"If you take the bigger look at things, a pick up in activity when there are clear bottlenecks in the supply side, deliveries are still very weak so that's suggesting manufacturers are having difficulties in sourcing materials, and the labour market is extremely tight," Steel said.

"I think it does play to the idea that demand is outstripping supply and inflation is lifting quite strongly."

New Zealand is not alone

New Zealand is not alone in dealing with rampant inflationary pressures.

The United States annual inflation rate hit a 39-year high of 7 percent, Canada was 4.8 percent, the Eurozone 5 percent, and the United Kingdom 5.4 percent.

The surge has challenged central banks across the world, and the RBNZ was one of the first among developed economies to start raising interest rates.

The RBNZ raised the OCR twice last year to 0.75 percent and signalled more rises this year.

ASB has forecast the OCR to peak at 2 percent late this year, but ANZ revised its forecast last week, predicting the OCR to hit 3 percent by April next year.

ANZ chief economist Sharon Zollner said with such a tight labour market, wage pressure was expected to be strong, meaning the RBNZ would need to take further action.

"We think the Reserve Bank is going to have to push on through and raise the OCR considerably higher than anyone was thinking six months ago or a year ago."