UPDATE 1-NZ inflation edges up, prospects of a rate cut dims

 (Adds details)
    WELLINGTON, Jan 23 (Reuters) - New Zealand's consumer price
index (CPI) rose in the fourth quarter, as high service costs
outweighed falling goods prices to keep inflation higher than
expected, bringing relief to the central bank and dimming the
chance of an interest rate cut.
   Quarterly inflation rose by 0.1 percent in the fourth quarter
of 2018, a touch weaker than the Reserve Bank of New Zealand's
(RBNZ) forecast of 0.2 percent and below the 0.9 percent rise in
the previous period. 
    Year-on-year inflation was at 1.9 percent, in line with the
third-quarter figures and slightly below RBNZ's target midpoint
of 2 percent. 
    Economists polled by Reuters had forecast year-on-year
inflation to ease to 1.8 percent and quarter-on-quarter
inflation to stay flat.             
    Prices of goods dropped 0.5 percent in the quarter and
petrol prices fell 0.6 percent, their first quarterly fall since
September 2017.
    That was offset by a 1.3 percent increase in services.
Non-tradable inflation was up 2.7 percent, the highest since the
second quarter of 2014.
    The New Zealand dollar          jumped to $0.6740 from
$0.6719 after the data was released, but eased later as the
numbers cooled off market speculation that the bank may even cut
its Official Cash Rate (OCR) later this year.
    "All told, the improvement in underlying inflation means the
RBNZ won’t be cutting interest rates anytime soon," said Ben
Udy, Singapore-based economist for Capital Economics. "But with
headline inflation set to fall further below target, combined
with a slowing in GDP growth, we think that rate hikes remain a
distant prospect." 
    Before the inflation data announcement the market was
pricing in a 50 percent chance that the RBNZ’s next move would
be to cut interest rates this year, some reports said.
    In November, the RBNZ struck a neutral tone saying its next
move would depend on how the economy fared and cautioned of
downside risks from global trade frictions.             
    Global risks have been building with looming concerns over
U.S.-China trade, a slowdown in China's economy and Brexit.
    Domestic indicators however, have firmed up for New Zealand
in recent weeks, with manufacturing activity picking up in
December. Business sentiment has turned "less gloomy." 

 (Reporting by Praveen Menon; Editing by Peter Cooney and Leslie