"Persistently low inflation requires an ever-rising exchange rate - the trade-weighted index over the June quarter was up 7 per cent on a year earlier - so even if the exchange rate steadies from, its depressing effect on prices will wane," the bank said.
"And if it extends its decline, it could become a major source of inflation."
Meanwhile, a strengthening economy, a hot housing market and "massive" pressures on the building industry were a recipe for higher home-grown inflation in the future, the bank said.
Two themes would drive the June quarter figures - the New Zealand dollar and housing.
The bank said the Kiwi, while it had started to fall since May, it was still at a record high on average over the quarter.
"A rising exchange rate puts downward pressure on the prices of imported and import-competing goods, and we suspect that this depressing force reached its peak in the last year," it said.
The bank estimated that tradeable goods prices fell 1.3 per cent in the year to June, the steepest decline since 2004, which in turn was the steepest on record.
Westpac said the pickup in the housing market could influence prices in a variety of ways through the purchase price for new houses, rents, property maintenance, and legal and real estate agent fees.
The bank noted that housing-related inflation had been modest at a nationwide level but that the pace was gradually increasing.
Looking ahead, what happens to the New Zealand dollar would be crucial, the bank said.
"Even if it were to hold steady, it would be less of a disinflationary force from here on. And if it extended its recent decline, it could become a major cause of inflation in coming years," the bank said. "Either way though, we suspect that the NZ dollar's long-running uptrend has broken."
The New Zealand dollar traded this morning at US78.47c, down from a peak of US86.75c in April and a post-float high of US88.43c in August, 2011.
The consumers price index increased 0.9 per cent in the year to the March 2013 quarter, following increases of 0.9 per cent and 0.8 per cent in the years to the December 2012 and September 2012 quarters,