Many economists were picking a rise in the official cash rate from March, although the first monetary policy review is next week.
However, the consumer price index data released by Statistics New Zealand should douse any expectation of an earlier rate hike.
ANZ-National Bank chief economist Cameron Bagrie said that judging from the rally in rates and the sell-off in the currency following the data release, that was already occurring.
"We suspect market pricing will start to back off on March but still have April fully priced. We have a strong bias towards the tightening cycle starting on a monetary policy date such as June as opposed to an OCR review in April."
Lifting interest rates during an OCR review looked like being too reactive to inflation results, he said.
Lower food prices were the major driver of the fall in inflation, to 2% for the year ended December.
Food prices fell 2.4% in the three months ended December, with other falls coming from alcoholic beverages and tobacco (down 1%), communication (down 0.6%) and household contents and services (down 0.1%).
Offsetting those was a 1.5% increase in the transport sector driven by a 12.9% rise in international air fares.
Non-tradeable inflation came in weaker than expected.
"On balance, there does not appear to be much evidence of broad-based price pressures starting to build. Inflation has hardly been crushed, but it certainly looks to be contained."
One of the areas that continued to confound was the lack of retail discounting in the official CPI data, Mr Bagrie said.
There were ample anecdotes of early and more aggressive discounting leading up to the Christmas shopping season, yet most retail-related prices rose.
The clothing and footwear sector was up a surprisingly strong 1.8%; furniture, furnishings and floor coverings were up 1%; household appliances were up 0.6%; and vehicle prices rose 1%.
There were large price falls recorded for electronic goods, but Mr Bagrie said he continued to be mystified by the lack of broad-based discounting recorded in the official figures.
Timing issues could be the reason and given that the March quarter was when there was a seasonal fall in tradeable prices, most of the discounting could be picked up then.
ASB chief economist Nick Tuffley said the key implication for the Reserve Bank was that near-term inflation was benign enough to keep the central bank "comfortable" in the short term.
He expected next week's OCR review to show little extra urgency in tone, with the Reserve Bank's goal of hiking rates around the middle of 2010 to remain in place and a March increase ruled out.
He expected the OCR to be raised 0.5% in April.
"Inflation right now is sitting at the midpoint of the target band, with recession causing a surprisingly modest decline in underlying inflation. The early signs are now appearing that disinflationary forces will soon start to abate."
