While rising fuel prices and air fares had been expected to boost inflation, they were offset by price declines across household appliances, food and vehicles, the StatisticsNZ data showed.
The weak result means the Reserve Bank, which maintains an inflation target range of 1%-2%, is unlikely to be raising the interest-driving official cash rate anytime soon.
The New Zealand dollar fell almost US1c on the news.
The consumer price index (CPI), the official inflation measure, rose just 0.1% in the fourth quarter.
The Reserve Bank had been forecasting 0.3% for the quarter and 1.8% for the year, while the ASB had been expecting 2% for the year.
ASB senior economist Jane Turner said the general inflation story remained intact. Current inflation pressures were largely contained to the housing sector.
"But the areas of weakness in some areas do raise some questions around how soon headline CPI inflation is likely to lift back to 2%," she said.
The data suggested inflation had yet to stage a "convincing comeback" in New Zealand, outside the housing sector, Mrs Turner said.
"It reinforces that there is no need for the Reserve Bank to raise interest rates anytime soon ... it seems appropriate that the Reserve Bank leave the OCR on hold over 2018, if not longer," she said.
Despite a 6.1% lift in petrol prices during the quarter, Mrs Turner said household contents and services continued to be a key drag on inflationary pressure. Household appliance prices fell 3.1% over the quarter, with glass, tableware and household utensils dropping 6.2%.
"The price of new cars was also a key drag over the quarter, with prices down 2.1%," she said.
Westpac senior economist Michael Gordon said the 0.1% quarterly rise was well below the 0.4% rise Westpac and the market were expecting.
"Annual inflation fell from 1.9% to 1.6%, the lowest rate since December 2016," Mr Gordon said.
Tradeable prices fell by 0.3% and the decline was widespread. Virtually every category with imported content came in below the bank’s forecasts, he said.
"The most significant declines were in clothing, household contents, and a 6% drop in new car prices."
In contrast, the more persistent non-tradeable component rose by 0.5%, he said. Rents and new dwelling prices continued their steady rise, joined by seasonal increases in domestic air fares, car rentals and accommodation, Mr Gordon said.
SNZ’s prices senior manager Jason Attewell said transport rose 3.2% for the quarter, influenced by petrol prices being up 6.1% and international air fares up 11%.
"Rising oil prices and a falling exchange rate pushed prices up sharply between July and November this year," he said.
The average price for 91-octane petrol was $1.94 in the December 2017 quarter, up from $1.83 in the previous quarter.
Regional variations in petrol prices were apparent in the December quarter. They were up 5.8% in Auckland, 7.1% in Wellington and 6.8% in Canterbury.
