By Lucy Craymer
       WELLINGTON, Oct 17 (Reuters) - New Zealand's consumer
inflation hit a two-year low in the second quarter but remained
above the central bank’s target of 1% to 3% as prices of
everything from food to housing rise.
    Consumer prices rose 5.6% year-on-year in the third quarter,
slower than the 6.0% increase in the second quarter, Statistics
New Zealand said in a statement on Tuesday.
    The consumer price index (CPI) rose 1.8% quarter-on-quarter,
faster than the 1.1% rise in the second quarter. The data was
slightly lower than economists’ expectations in a Reuters poll
for a 2.0% rise for the quarter and a 5.9% annual rise.
    Inflation is a significant challenge for the Reserve Bank of
New Zealand and it has responded by raising interest rates to
5.5% from a record low 0.25% in October 2021. The bank has said
it now believes that rate increases are having the desired
impact on dampening inflation, although the cash rate will have
to remain at this restrictive level for some time to ensure
inflation returns to the target range.
    Two-year swap rates               fell 7 basis points to
5.63% as the market pared the chance of a hike in November to
20%, from 33% ahead of the data. The New Zealand dollar slipped
0.3% to $0.5910.
    The main drivers of annual inflation were rising prices for
construction and rents while food was the biggest contributor to
quarterly inflation, Statistics New Zealand said in a statement.
    "Prices are still increasing, but are increasing at rates
lower than we have seen in the previous few quarters," said
Nicola Growden, the prices senior manager at Statistics New
Zealand.
    Statistics New Zealand added that non-tradeable inflation
rose 6.3% on year.
    

 (Editing by Rod Nickel)