FXStreet (Mumbai) - Statistics New Zealand today reported sharpest drop in the Consumers Price Index (CPI) in 17 years. CPI fell 0.5 per cent in the December quarter, higher than then the expected 0.2 per cent decline. It marked a sharp fall from the 0.3 per cent inflation growth seen in the previous quarter and marked the largest quarterly drop since December 2008. Annual inflation now stands at 0.1 per cent for 2015, which is the lowest annual rate since late 1999. Fall in oil prices caused petrol prices to drop more than 8 per cent last year and that. Petrol prices weighed on prices as it fell 8.1 per cent. Excluding petrol, the CPI showed a rise of 0.5 per cent increase in the year to Q4 2015. Vehicle relicensing fees and international air fares also disappointed. Quarter on quarter, petrol prices were down 7.0 per cent with the average price of a litre of 91 octane petrol falling to $1.84 in the December quarter of 2015 compared with $1.98 in the September quarter. Petrol pump prices were 4.5 per cent below the average price for the quarter by the time the December quarter drew to a close. Cheaper fresh food further aggravated the price crisis. Surprisingly, lower currency failed to have any impact on prices. It was expected that weakening of goods would cause people to pay more for imported goods and prices would rise in the process. The combination of these two factors offset the positive impact on prices due to higher rents and building costs. Analysts reasoned that retailers in order to stay competitive have probably absorbed higher prices. Moreover cheaper fuel helped to lower the transport and distribution costs of retailers. The only push upward was rendered by the prices in the housing and household utility sector which moved up 2.8 per cent annually. Housing rentals increased 2.5 per cent, newly built houses excluding land was up 5.0 per cent and local authority rates increased 6.2 per cent. Consumer prices manager Matt Haigh noted "Housing-related prices in Auckland increased by more than the national average, with new houses up 7.2 per cent and rents up 3.3 per cent from a year earlier”. Inflation has now been way below the central bank's 1-3 per cent inflation target zone for more than a year now. The RBNZ had in its December’s Monetary Policy Statement forecast 0.4 inflation rate for 2015. The rising deflationary pressure steps up pressure on the central bank to slash rates further to support the economy. With oil prices at multi-year low it is unlikely that inflation will move up to the central bank’s target any time soon. Westpac Bank senior economist Michael Gordon shared this broad market belief when he said "Combined with continued softness in oil prices, it's looking very unlikely that inflation will return within the RBNZ's target band this year," The RBNZ had held rates steady at 2.5 per cent in December. However, the central bank had stressed that it will “reduce rates if circumstances warrant” Markets believe that poorer than expected CPI figures have raised possibility of rate hike in the coming months. The central bank may hold rates steady this month when it meets on 28th January but it cannot choose to not act for a long time given the extremely weak price environment. Westpac’s Gordon forecast “two further rate cuts around the middle of the year.” For more information, read our latest forex news.