Volatility associated with Covid-19 has driven down consumer prices.
Low petrol prices during the Covid-19 lockdown dragged the Consumer Price Index down 0.5 percent. Photo: RNZ / Dan Cook
The Consumer Price Index for the three months ended in June dropped 0.5 percent, with annual inflation of 1.5 percent.
It is the first fall in quarterly inflation since December 2015.
It was also slightly stronger than the Reserve Bank had forecast, with quarterly deflation of 0.7 percent and annual inflation of 1.3 percent.
However, it was a significant turnaround from the March quarter's annual inflation rate of 2.5 percent, which was just above the central bank's inflation target range of between 1 and 3 percent.
In addition to the pandemic, low petrol prices were the main drag on overall prices.
Oil prices fell to record lows in April, following a price war between Saudi Arabia and Russia, after they failed to make a deal to limit production.
ASB senior economist Jane Turner said domestic inflation was weaker than expected, with some services offered for free or at discounted rates.
Some of the services offered for free included public transport, while accommodation costs also dropped.
Offsetting some of that was a slight rise in the price of toilet paper and other personal hygiene products.
"We do expect inflation to continue to fall from here," Turner said, adding inflation was expected to drop to zero by the beginning of next year.
