Inflation may be at the lowest level in more than a decade and below the official target, figures out this week will show, although economists say only a deepening global crisis will see interest rates cut.

Tomorrow Statistics New Zealand will publish official figures on increases in the cost of living in the three months to September 30.

Surveys of economists conducted separately by the Wall Street Journal and Bloomberg last week both tipped annual inflation of 1.0 per cent, the same as the year to June 30.

However, economists at three of New Zealand's "big four" banks, ANZ, BNZ and Westpac, are all predicting a quarterly increase of 0.4 per cent, dropping annual inflation to 0.9 per cent.

Should this be confirmed, it would be the lowest rate of inflation since 1999, and the first time it has fallen below the Reserve Bank's target band.

The band is a basis for setting the official cash rates, which heavily influence mortgage and deposit rates, although the central bank focuses on the medium-term outlook.

Westpac economist Michael Gordon said Tuesday's figures were backward looking, and the outlook was for inflation to increase to about 2 per cent in the next year.

"There's still plenty of good reasons to keep interest rates low, but I don't think they are necessarily reasons to take it lower."

BNZ economist Doug Steel said the rise in the September quarter would come from increases in the price of food and alcohol, as well as increases in local authority rates.

These would be partly offset by lower prices for telecommunications (as mobile and broadband operators drop the price of data per unit) and falling prices on clothes, shoes and household items, signs of a stronger kiwi dollar.

Some economists have speculated that the Reserve Bank of Australia - which cut its official rate and is expected to do so again in November - may force the hand of our central bank.

Steel said Australia's rate was still higher - 3.25 per cent compared to 2.5 per cent - and Australia's mining boom was set to peak next year.

"Contrast that with the rebuilding boom in Christchurch, which is really just starting to get underway. The medium-term pressures are quite different."

ASB economist Jane Turner, who expects inflation to be 0.5 per cent in the September quarter, said if inflation fell below the Reserve Bank's target, the market would likely see it simply as evidence of a subdued economy.

However, if non-tradeable inflation - such as construction costs - came in higher than expected, "it could be cause for some concern" that rebuild related cost increases could force an increase in interest rates.

- © Fairfax NZ News