Inflation is set to plunge to zero by September this year, 12 months after it reached an 18-year high of 5.1%, Westpac chief economist Brendan O'Donovan says.
He is one of several economists predicting that inflation, as measured by the consumers price index (CPI), fell to 3.4% in December.
The December CPI is released tomorrow.
"We think annual inflation will plunge through 2009, getting close to zero by the third quarter.
"Such are the powerful downward forces from very weak economic activity, both globally and domestically.
"Substantially lower fuel prices will be prominent in the short-term data, while a very weak economy will pull down general inflation later this year."
The rapid fall in inflation would start tomorrow with the major drivers to be transport prices, food prices and housing-related prices, Mr O'Donovan said.
The 23% drop in petrol prices would be the key component of the forecast 1.8% fall in tradeable inflation.
Non-tradeable inflation was expected to be 0.7% for the quarter, keeping annual non-tradeable inflation at a "pesky" 4.1%, he said.
"Still, a 4.1% print would come as a down-side surprise to the Reserve Bank, given the 4.4% forecast in the December monetary policy statement."
The introduction of free off-peak public transport for the elderly would also push down prices.
International air fares would show a seasonal increase although it was not likely to be as much, given the massive retreat in fuel costs.
Food prices were expected to rise 1.6% in the quarter, led by groceries, meat and poultry prices and the cost of eating out, Mr O'Donovan said.
ASB chief economist Nick Tuffley said although annual non-tradeable inflation would go up, there should be evidence that weak demand was reining in housing construction andmaintenance costs.
Those cyclical components had been significant contributors to inflation in recent years.
"The tail end of council rate increases and the sharp increase in retail electricity prices will continue to hold up inflation.
"It is also too early to expect much moderation in labour-intensive service sector inflation."
Reserve Bank governor Alan Bollard made a speech last year singling out some persistent sources of inflation, including council rates and electricity prices.
Mr Tuffley believed the Reserve Bank would be comfortable that long-standing price pressures for the construction and maintenance of houses would dissipate on the back of the slumps in housing construction activity and commodity prices.
The rapid turn in the labour market would also moderate wage growth and the sharp reversal of petrol prices and general inflation swiftly removed elevated inflation expectations as a potential driver of inflation over the next two years.
There was room for the central bank to cut its official cash rate by 1% to 4% on January 29, he said.
The European Central Bank cut its interest rates by 0.5% to 2% late last week, moving to protect the economy against a deep recession.
The cut left the central lending rate at its lowest point since December 2005.
The ECB has reduced interest rates on four occasions since October from a high of 4.25%.
In the United States, the Federal Reserve last month cut its rate to hover between zero and 0.25%, and the Bank of England cut its rate by 0.5% to 1.5%.
The euro zone economy was in recession even before the worst of the financial crisis in October, having slumped 0.2% in both the second and third quarters of 2008.
Two quarters of negative growth is the accepted definition of recession.
New Zealand's economy has been forecast to stay in recession until possibly September.
