Inflation was materially weaker in the quarter compared with the Reserve Bank's forecasts.
Most economists expect the Reserve Bank to keep its official cash rate on hold at 2.5 per cent but ASB Bank and Westpac both expect further cuts - to 2.0 per cent - based on a benign inflation environment.
"The result reinforces our view that inflation pressures won't pick up to the extent the Reserve Bank is forecasting without further rate cuts," ASB Bank chief economist Nick Tuffley said in a commentary. "Not only does this support our view for further rate cuts, it suggests an increased risk that cuts could happen earlier than June, particularly if domestic and offshore economic conditions continue to deteriorate," he said.
Petrol prices, down 8.1 percent, made the largest downward contribution for the year.
Excluding petrol, the CPI showed a 0.5 percent increase in the year to the December 2015 quarter. The small movement for the year was also influenced by both lower vehicle relicensing fees and international air fares.
Housing and household utility prices were up 2.8 percent in the year, with higher prices for housing rentals (up 2.5 percent), newly built houses excluding land (up 5.0 percent), and local authority rates (up 6.2 percent).
"Housing-related prices in Auckland increased by more than the national average, with new houses up 7.2 percent and rents up 3.3 percent from a year earlier," the department's consumer prices manager Matt Haigh said.
The department said the CPI often falls in December quarters, due to seasonally lower vegetable prices and seasonal discounting.
After adjusting for seasonal effects, the CPI fell 0.2 percent over the quarter.
See the full Statistics NZ CPI release here:
