Inflation for the first quarter of the year was bang on Reserve Bank expectations and won't add weight for another rate cut next week, say economists.

At 0.2 per cent for the quarter and 0.4 per cent for the year to the end of March it was slightly higher than the expectations of many economists but remained historically low. New Zealand's rolling annual inflation rate has been below 1 per cent for seven consecutive quarters.

The Reserve Bank is mandated to set its monetary policy to keep inflation between 1 and 3 per cent with the focus on a mid-point of 2 per cent. That has most economists expecting there will be one or possibly two more cuts to the official cash rate this year as the bank seeks to stimulate the economy and drive inflation.

But as Westpac's Michael Gordon wrote, the latest data added "no fuel to the fire" for a cut next week.


In fact market pricing for a cut next week has receded to around a 30 per cent chance which was more in line with Westpac's expectations, he said.

The big falls in the March quarter data were oil related - a 7.7 per cent fall in petrol prices and a 12 per cent fall in international airfares.

Meanwhile, the largest increases came from a 9.4 per cent increase in tobacco and a 2.5 per cent rise in education fees. There were also slight rises in household goods and car prices as the falling Kiwi dollar lifted import prices.

But most economists have noted that the dollar remains higher than expected and is providing a headwind to a rebound in inflation.

ANZ and ASB economists still see the Reserve Bank cutting by 50 basis points this year.

ASB has joined Westpac in tipping the bank will have to introduce tighter lending restrictions for banks to head off the housing boom and allow it to keep rates low.

"If housing data over coming months confirm the re-acceleration, then we expect one way could be to broaden the investor restrictions later in the year from 'Auckland only' to nationwide. Alternatively, the investor deposit requirement of 30 per cent could lift to say 40 per cent," ASB economists wrote in their weekly outlook.

Meanwhile, crude oil prices have taken a fresh hit from the failure of oil-rich countries to reach an agreement on Sunday on freezing production. The latest fall in oil will put further deflationary pressure on the global economy and may effect New Zealand's second quarter inflation outlook. Brent crude oil, which is used to price international crude oil, fell US$2.23 to US$40.87 a barrel early yesterday, down 5.1 per cent. It tumbled 7 per cent in earlier trading.


The effort to reach an accord on freezing production to support prices failed after Iran stayed away from a weekend meeting of 18 oil producing nations in Qatar that had been expected to boost crude prices.