The consumer price index, the official measure of inflation, was 0.3% for the three months ended June, down from market forecasts of 0.4%.
Annual inflation was 1.6%, down from forecasts of 1.8% and 1.9%. However, the benign annual inflation rate hid some hooks for households.
Statistics New Zealand figures non-tradeable inflation increased 2.7% on an annual basis. But overall inflation was being contained by low tradeable inflation of 0.1%, courtesy of the high New Zealand dollar.
ASB economist Christina Leung said the dollar was high for understandable reasons, particularly the Reserve Bank's tightening cycle.
''But the 8.9% fall in dairy prices overnight, added to the series of falls over the year, give one very good reason why we should see a lower New Zealand dollar over the next year. In turn, this would mean higher tradeable inflation,'' she said.
The housing and utilities group showed a 1.2% rise in the June quarter and was a key contributor to the second-quarter increase. Driving that was a 3.7% increase in energy prices in the quarter. Energy prices rose 4.1% in the year.
Rents increased 0.6% and construction costs increased 1.2%.
Statistics NZ highlighted the relatively larger increase in construction costs for Canterbury and Auckland over the past year which went up 6.4% and 5.5% respectively - higher than the nationwide average of a 4.6% annual increase.
Westpac senior economist Felix Delbruck said the inflation report itself amounted to only a small down side surprise for the Reserve Bank.
But in combination with the fall in dairy auction prices overnight, the data was material for the interest rate rises.
In the June Monetary Policy Statement, the Reserve Bank signalled it intended lifting the OCR on July 24 before pausing. Markets were pricing in a 0.25% rise in the OCR to 3.5% as a ''done deal'', he said.
''After today's data double-whammy, we think markets should pause for thought. A July OCR hike may not be quite such a sure thing as previously thought.''
Green Party co-leader Metiria Turei said families were facing rising costs from food, power and mortgages or rents and most were getting no wage increases.
''Workers, whether tenants or home owners, are copping it on all fronts.''
Government figures on Tuesday showed average residential electricity prices for the year ended March were 2.3% higher than for the previous year, she said. Prices were now 22% higher than when National came into office.
Families were being stretched so far they could no longer afford the basics.
''It means children going without good food, decent shoes and a bed of their own in order to make ends meet.''
The so-called competitive power market had never worked. Demand was slack, if not falling, but power prices were still rising, Mrs Turei said.
Labour Party energy spokesman David Shearer said CPI figures showed just how much the Government's updated statistics downplayed the increase in prices under the new reporting system.
''The Government was smugly boasting about a `small' 2.3% increase in power prices to March. What the Energy Minister [Simon Bridges] was not saying was the increase is smaller because the Government has changed the way it calculates electricity pricing. The CPI proves Mr Bridges was just prevaricating.''
Too many New Zealanders were living in cold, damp houses because they could not afford to put the heater or electric blankets on, Mr Shearer said.
At a glance
•Annual inflation at 1.6%, below Reserve Bank 2% mid-point.
•Rethink possible on next week's OCR rise.
•Benign inflation rate hides increasing costs for households.
•Opposition parties focus on increased electricity costs.
