Inflation rose 0.6 per cent in the June 2019 quarter, due to higher prices for petrol and rent, but that is likely the peak for this year, economists say.
The slowing economy is expected to ease price pressure and the Reserve Bank remains on track for at least one, possibly two, cuts to the Official Cash Rate.
Yesterday's inflation number was "as good as it will get for domestic inflation for some time", wrote ANZ economist Michael Callaghan. "The economic expansion has slowed, the global environment has become a headwind, and peak capacity pressure is behind us."
"Underlying inflationary pressures appear to have stalled below 2 per cent and are set to move lower over the next year as spare capacity feeds into pricing," he said.
In the year to June 2019, the inflation rate was 1.7 per cent, up from 1.5 per cent in the March 2019 year the consumers price index (CPI) shows.
Petrol prices rose 5.8 per cent in the quarter after a 7 per cent fall in the March quarter.
The average price of 91 octane petrol was $2.13 a litre this quarter, up from $2.01 last quarter, but still under its peak of $2.18 in the September 2018 quarter.
However, petrol prices have started to fall again.
"Petrol prices rose slowly over the first part of the quarter, reaching a peak in late May and then falling," Stats NZ prices senior manager Paul Pascoe said.
"By the last week of June, the petrol pump price was 2 per cent lower than the June quarter average."
Rental costs were the other driver in an otherwise subdued inflation environment.
Rent prices rose 1 per cent in the June 2019 quarter, and increased 2.5 per cent over the year.
The latest quarterly rise is the largest since the March 2008 quarter when rent prices rose 1.2 per cent.
However this was, at in least in part, due to a change in methodology in the way Stats NZ collects that data.
The Reserve Bank's mandated inflation range is 1 to 3 per cent, and it aims to hit the mid-point of 2 per cent.
"A sustained move towards the 2 per cent mid-point of the target would require stronger economic growth from here," said Westpac senior economist Michael Gordon.
"That hasn't been forthcoming; in fact, the domestic economy has been slowing and the global environment has become more uncertain."
The Reserve Bank had already judged that a lower OCR was likely needed to meet its objectives, and yesterday's figures did nothing to change that stance, he said.
Food prices were mixed, Gordon noted.
Fresh produce prices were subdued, but there was a notable rise in prices for eating out.
The latter is likely due to the large 7.3 per cent increase in the minimum wage in April, he said.
The only notable surprise was that airfares (both domestic and international) have continued to trend lower, despite rising fuel costs in the last couple of years, he said.
"It may be that switching to newer, more fuel-efficient planes is outweighing the impact of the rise in world oil price."
Prices in the relatively buoyant construction sector have also slowed down, rising 0.7 per cent for the second quarter in a row, Stats NZ noted.
This has reduced the annual increase to just 3.5 per cent, the lowest it has been since the March 2013 quarter.
"The fall in construction price inflation is consistent with construction activity having slowed down since its peak in 2016," Stats NZ's Pascoe said.