Key inflation data due out tomorrow is likely show a slight uptick in prices over the June quarter due to higher petrol costs, but the underlying picture is expected to reinforce the case for at least one more cut in the Reserve Bank's official cash rate, economists said.
ASB, ANZ and Westpac expect to see CPI inflation come in at 0.6 per cent for the June quarter and 1.7 per cent for the year, up from 0.1 per cent and 1.5 per cent, respectively, in the year to March.
Both ASB and ANZ expect to see rate cuts from the Reserve Bank in August and November, following on from May's quarter-point rate cut to 1.5 per cent.
Westpac expects to see just one hike - in August. The bank expects house prices to pick up towards the end of the year, lifting inflation and mitigating against a third cut.
ASB chief economist Nick Tuffley expects to see a slight pickup in the annual inflation number but "under the hood" he expected inflation to be steady, with no real inflation pressures.
Towards the end of the year, the non tradables inflation - the domestic component of inflation - will ease back slightly, he says.
"It's an environment that contributes to the fact that there is not much to lose from cutting interest rates in the sense that we are still trying to push inflation back up to comfortably to within the target band," he said.
"It's not like the economy is doing terribly - it's just that it's not growing as fast as it is capable of," he said.
"It needs that extra push up to something a little bit stronger," he said.
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.
ANZ said it expects tomorrow's release to show annual inflation remained below that point.
"We expect the second quarter CPI to support the case that inflation pressures have stalled and more is needed from the Reserve Bank to support the economy and see inflation sustainably around target over the medium term," ANZ economists said in a commentary.
"The non-tradeable inflation print and core inflation measures will be crucial for the Reserve Bank, following several quarters of stability," the bank said.
The outlook for global growth had softened and domestic capacity pressures had waned, ANZ said.
"However, a downside surprise to non-tradeable inflation would add to the case for the Reserve Bank to signal even further cuts are needed," the bank said.
"All up, we think the second quarter will mark the peak in annual non-tradeable inflation for now."
ANZ said New Zealand's economic expansion had stalled and that the global environment had become a headwind.
"The Reserve Bank needs to see accelerating GDP growth to achieve a sustained lift in inflation, and that is looking increasingly unlikely to occur," ANZ said.
Bank of NZ senior markets economist Craig Ebert expects an annual CPI rate of 1.6 per cent and for the Reserve Bank to cut just once, in August.
"I don't see the imperative for it, but the Reserve Bank will do so regardless," Ebert said.
Tradeable inflation - which covers the prices of goods that are tradeable on the international markets - is expected to print at 0.8 per cent, quarter on quarter, supported by higher fuel prices.
Non-tradeable inflation which is more affected by changes in domestic conditions, expected to rise by 0.3 per cent.
Petrol prices rose about 8 per cent in the quarter on the back of higher oil prices globally.
Rising insurance costs is expected to be a factor behind the CPI's rise, as will a slight lift in food prices.
Seasonal lows in accommodation services and domestic airfares are expected to be a drag on non-tradables inflation.