Inflation is expected to come in under the Reserve Bank's target range of 1%-3% for the fourth consecutive quarter today, but the news comes with a warning inflation pressure is building.
Statistics New Zealand data is scheduled for release today and Westpac senior economist Michael Gordon estimated consumer prices rose 0.2% during the June quarter, taking annual inflation down to 0.7%, a new low point for this cycle.
''The steep rise in the New Zealand dollar over the last year created a substantial downdraught on the prices of internationally traded goods.
''We believe this effect has now peaked and if the currency extended its recent decline, it could become a significant inflationary force in coming years,'' Mr Gordon said.
ASB economist Christina Leung was slightly more conservative in her estimates, predicting the second-quarter inflation to show an increase of 0.1% quarter on quarter, and 0.6% year on year.
''Declines in petrol prices, clothing prices and communication prices are behind the subdued second-quarter inflation result,'' Ms Leung said.
The consumer price index rose 0.3% in the second quarter for an annual pace of 0.8%, according to a Reuters survey of 10 economists and the Reserve Bank's latest estimates, BusinessDesk reported.
The annual rate would match the level of the third quarter last year, which was the lowest since the final quarter of 1999, a year marked by nine months of deflation.
It would also give the central bank little reason to bring forward the timing of interest rate increases, even though it suspects inflation pressures are building in the housing market and from a trade weighted index that has tumbled from its second-quarter highs.
''The low annual pace of current inflation presents an awkward policy challenge for the RBNZ,'' said ASB chief economist Nick Tuffley, whose forecast of 0.1% for the quarter and 0.6% for the year is at the bottom of the range in the Reuters survey.
Fuel costs probably helped the transport component of the CPI record the biggest decline in the second quarter, ASB and Westpac said. Brent crude oil reached a 12-month high in February but fell steeply early in the second quarter.
Since the end of the quarter, petrol prices have gained and last week rose to a record 226.9c a litre.
Telecommunications prices probably weakened amid intense competition between phone companies.
Westpac's Mr Gordon said the second quarter might be the last of persistently low inflation, given the effects of a weaker kiwi and ''a strengthening economy, a hot housing market and massive pressures on the building industry'', which are ''a recipe for higher home-grown inflation in the future''.
The Reserve Bank agrees. Its June monetary policy statement has inflation speeding to 0.6% in the third quarter and an annual pace of 1.1%.
