* Q4 CPI rises 0.1 percent qtr/qtr, 1.6 percent yr/yr
* Food, household items drag on the index
* Data should reinforce RBNZ's determination to keep rates on hold
(Adds details, economist quote; updates market reaction)
By Charlotte Greenfield
WELLINGTON, Jan 25 (Reuters) - New Zealand's consumer price index (CPI) rose only 0.1 percent in the fourth quarter, Statistics New Zealand said on Thursday,dramatically short of expectations and sparking a selloff in the local currency.
The result put annual inflation at 1.6 percent, well below the 1.9 percent expected by analysts.
The New Zealand dollar sank more than a cent to $0.7327 after the data was released. The currency last stood at $0.7340.
The surprise result was unwelcome news for the Reserve Bank of New Zealand (RBNZ), which has kept the official cash rate at a record low of 1.75 percent since late 2016 in an effort to see inflation stabilise around the middle of its 1 percent to 3 percent target band.
"This reinforces that the RBNZ will remain on the sidelines for some time yet," said Jane Turner, senior economist at ASB Bank.
The weak CPI reading would only compound the bank's determination to keep rates on hold for years, when it makes its next monetary policy decision on Feb. 8.
Inflation in the quarter was dragged down by falling prices for food, household items and cars.
As usual, housing-related costs provided the main source of domestic inflation with construction prices jumping 1.3 percent and rents up 0.5 percent.
"Outside of the housing sector it becomes hard to find evidence of inflationary pressures building," Turner said.
Higher global oil prices also provided support to the index, pushing up the cost of petrol by 6.1 percent.
(Reporting by Charlotte Greenfield and Wayne Cole; editing by Matthew Mpoke Bigg, G Crosse)
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