Falling milk, fruit and television prices, as well as cheaper cell phone services helped lower inflation to just 0.3 per cent in the June quarter.
That took annual inflation down to just 1.0 per cent - the lowest level since 1999 - pointing to an even later start to any official interest rate rises next year.
The low inflation figure for the quarter also reflected a high New Zealand dollar holding down import prices, and stagnant petrol prices in the quarter.
Economists had expected June quarter inflation of 0.5 per cent, with the main surprise a lack of housing-related inflation.
At 1 per cent, annual inflation is now at the bottom of the Reserve Bank's target band of 1 per cent to 3 per cent.
Low inflation will let the Reserve Bank keep official interest rates at extremely low levels, with the official cash rate expected to be on hold at 2.5 per cent until next year.
Westpac Bank chief economist Dominick Stephens said given the low level of headline inflation, the bank would review its forecast for the official cash rate "with an eye to a later start date for hikes".
Westpac currently expects the Reserve Bank to start raising rates from March next year.
However, Westpac seriously doubted the Reserve Bank would consider cutting the official cash rate, despite currently low inflation.
The lack of a rising currency this year and improving economic growth were strong signs that inflation would rise to "some extent" in the next couple of years. It was still too soon to say how much inflation the Canterbury rebuild would provoke, Stephens said.
For now, housing-related costs were lower than expected, with rents rising just 0.5 per cent nationally in the June quarter after a lift of 0.9 per cent in the previous quarter. Maintenance charges fell 0.4 per cent after a 1.2 per cent spike in the previous quarter. But home ownerships costs were up 0.9 per cent in the quarter and 3 per cent for the year.
Annette Beacher, head of Asia-Pacific research for TD Securities, expects the RBNZ to "voice a benign 'on hold for longer' message" at next week's official cash rate review.
"While we expect next week's OCR review to pass by unnoticed, there is always the marginal risk that the RBNZ Governor (in his second-last opportunity before retiring) accidently appears hawkish via discussing recent upsides to growth outcomes."
Meanwhile, Statistics NZ prices manager Chris Pike said: "The increase in the CPI reflects higher electricity prices and seasonally higher vegetable prices, partly offset by lower prices for things such as telecommunication services.
"The main downward contribution in the June 2012 quarter was lower prices for telecommunication services (down 2.5 per cent), which reflected increased broadband data caps and better-value cellphone services."
Fresh milk (down 4.6 per cent), fruit (down 3.2 per cent), audio-visual equipment (down 3.6 per cent), and second-hand cars (down 1.0 per cent) also had lower prices.
The main factor pushing up prices was electricity, up 4.5 per cent in the June 2012 quarter. Power prices had fallen a total of 0.7 per cent over the previous three quarters, due to customers switching suppliers and bigger prompt-payment discounts.
Electricity prices are now 3.7 per cent higher than their previous peak in the June 2011 quarter.
Vegetable prices (up 11 per cent) were the second-biggest contributor. The rise reflects seasonal rises in tomato prices, which almost doubled from $3.70 to $7.30 a kg. Lettuce prices (up 44 per cent) also rose.
Other upward contributors to the CPI in the June 2012 quarter were: beer (up 2.7 per cent), rentals for housing (up 0.5 per cent), purchase of new housing (up 0.9 per cent).
Meanwhile international air fares went up 2.4 per cent, overseas package holidays rose 2.8 per cent, and petrol rose 0.4 per cent.
The annual CPI increase was the smallest annual movement since a 0.5 per cent increase for the year to the December 1999 quarter.
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