Interest rates are likely to remain on hold for longer after annual inflation fell to just 0.1 per cent, although unions and the Green Party want rates to be cut.
It was the lowest annual inflation rate since 1999 and slightly lower than most economists expected, but only just.
The Consumers Price Index fell 0.3 per cent in the March quarter because of a dive in petrol prices, after a 0.2 per cent dip in the December quarter, Statistics NZ said.
Westpac said the Reserve Bank was "well-prepared" for a low inflation figure and would not be alarmed by the latest result.
"Indeed, the result was slightly above the the Reserve Bank's forecasts in its March Monetary Policy Statement," Westpac economists said.
Such low annual inflation will set the scene for official interest rates to stay on hold for an extended period, other economists said.
Financial market pricing last week suggested a cut was expected to the Reserve Bank's benchmark rate.
But ANZ economists said today they continued to expect the official cash rate to remain unchanged "for a very extended period".
Inflation looked set to remain low over 2015, but beyond that uncertainty over the outlook was high.
However, Council of Trade Unions economist Bill Rosenberg said with annual inflation of just 0.1 per cent, the Reserve Bank must cut its official interest rate next week.
"It is well past time it did so," Rosenberg said.
Green Party co-leader Russel Norman said inflation was well below the Reserve Bank's target band, which was 1 to 3 per cent on average over the medium term. That give the central bank the scope to cut rates.
"But it is unlikely to, given National failure to address Auckland's housing crisis," he said. The Reserve Bank would not cut rates for fear of adding fuel to rising house prices in Auckland.
The NZ dollar fell modestly against the Australian dollar and was trading about A98.6c late Monday morning.
PETROL'S INFLUENCE WANING
The last time the CPI showed two consecutive quarterly falls was in the December 1998 and March 1999 quarters.
"The fall in the March quarter CPI, which last happened in 2001, was caused by an 11 per cent fall in petrol prices. Without petrol, the CPI rose 0.3 per cent," Statistics NZ prices manager Chris Pike said.
The average price of a litre of 91 octane petrol in the March 2015 quarter was $1.79, compared with $2.00 in the previous quarter.
But the influence of cheaper petrol prices may be waning.
By the end of the March quarter, petrol pump prices were 1.8 per cent above the average price for the quarter.
If petrol pump prices stay at their current level, petrol will push up inflation for the June quarter.
Westpac Bank economists said the main surprise was in tradables inflation with still soft import prices.
The prices of tradable goods and services - which are imports and goods that compete with imports - fell 2.8 per cent in the year.
That reflected cheaper petrol, down 15 per cent for the year, and for audio-visual and computing equipment, down 13 per cent for the year.
Tradable prices are now at their lowest level since the June 2009 quarter, despite petrol prices now being 12 per cent higher than they were in that quarter.
Non-tradable goods and services increased 2.3 per cent, the lowest annual increase since the September 2012 quarter.
The main contributor was cigarettes and tobacco prices (up 14 per cent), influenced by the increase in excise duty in January 2015.
Housing and household utility prices were up 3.0 per cent in the year, with higher prices for newly built houses excluding land (up 5.0 per cent), housing rentals (up 2.3 per cent), and electricity (up 3.6 per cent).
Excluding cigarettes and tobacco, the annual inflation rate fell 0.2 per cent. And excluding petrol, the CPI increased 1 per cent over the year.
For the March quarter, cigarette and tobacco prices rose 12 per cent, following an 11 per cent rise in excise duty in January.
Excluding cigarettes and tobacco, inflation fell 0.7 per cent in the quarter.
The average price of a pack of 25 cigarettes was about $26.40 in the March 2015 quarter, compared with $23.30 in the December 2014 quarter.
- Dominion Post