Inflation figures due on Thursday will contain contrasting data but are expected to show inflation is on the wane for the rest of the year.
Westpac economists are forecasting the consumer price index (CPI), the official measure of inflation, to rise by 0.3% for the three months ended March, taking annual inflation to 3% from 3.4% late last year.
Disinflation would be the theme for 2009, Westpac senior economist Doug Steel said.
Disinflation is described as a slowing of the rate at which prices increase.
Typically, this occurs during a recession as sales drop and retailers are not able to pass on higher prices to customers.
It should not be confused with deflation, where prices actually drop.
Mr Steel said economic contraction for more than a year had generated significant economic slack.
Capacity utilisation was falling and unemployment was rising.
Inflationary pressures dissipated under such conditions.
"That will be the story for later in the year though, as usual, the current quarter CPI is more about specific price changes rather than the general inflation environment."
The major movers in the CPI in the March quarter were expected to be food prices, housing-related prices and transport prices, he said.
The food group was expected to make the strongest positive contribution to inflation, with a forecast 1.1% rise in the quarter, led by groceries.
Higher housing-related prices would be largely driven by electricity prices, with limited inflation elsewhere in the housing group.
Despite rising in the quarter, petrol prices were on average lower in March than in December.
Meanwhile, diesel prices were significantly lower, Mr Steel said.
International airfares would show a seasonal decrease, although he suspected it would be larger than usual given weak demand and the retreat in fuel costs.
"The wild card in transport is vehicle prices.
There is upward price pressure from a lower exchange rate, but downward pressure from high stocks, weak demand and tight credit.
We have factored in a 1% increase over the quarter."
Inflation for consumer durables was likely to be low, reflecting the usual seasonalness and widespread reports of discounting given weak demand.
However, Mr Steel was wary that the 7% fall in the dollar in the quarter, and the 25% drop over the past year, could put more upward pressure on imported product prices than expected.
On the non-tradeable side, the annual tobacco excise tax increase and changes in education fees would be notable features, in addition to higher electricity prices.
Inflation followed the economic cycle so current inflation outcomes had limited implications for policy, he said.
"That said, we'll be looking for any early signs that the year-long recession is more rapidly pulling down domestic inflation, as well as getting a gauge on the balance of influence on tradeable prices from weak demand and a lower dollar."
Westpac, like the Reserve Bank, expected annual inflation to be below the bottom of the 1% to 3% policy target band by September.
The fall in petrol prices from the peak of $2.18 a litre in July last year was a key part of that story, Mr Steel said.
Reports of extremely weak activity, increasing spare capacity and negative pricing intentions all pointed to a weak inflation outlook.
"This outlook, much more than the confirmation that current inflation is easing, gives the Reserve Bank licence to walk the walk after talking the talk."
Westpac expected a 0.5% cut in the official cash rate in the April 30 review to take it to 2.5%.
At a glance
• First quarter CPI to rise by 0.3%.
• Annual inflation to drop to 3%, heading lower.
• Non-tradeable annual inflation now easing.
Inflation outlook warrants more monetary easing.
