Retail prices are unlikely to rise other than modestly, as factors beyond the control of both shoppers and retailers combine in an unusual set of circumstances.
Westpac senior economist Satish Ranchhod said he expected to see some increase in retail price inflation in the coming year.
The dollar had fallen by more than 10% since the middle of the year and the price of imports had been climbing.
That would gradually flow through to higher prices on shop floors.
The lower dollar would push up import prices in the near term but the scope for large or continuing increases in retail prices looked doubtful.
"We anticipate the extent of price increases in the retail sector over the next few years will remain modest and the pressure on margins will persist.''
The reason retail price inflation beyond the near-term would remain modest was the weakening strength of domestic demand, he said.
During the next 12 months, economic growth was set to slow as the economy hit several bumps.
Those included drought, lower dairy prices, a softer housing market and levelling reconstruction activity in Canterbury.
The conditions would result in unemployment rising and consumption spending growth easing.
Against that backdrop, it would be hard for retailers to push through price increases, Mr Ranchhod said.
At the same time, while the lower dollar would push up operating and input costs, lingering weakness in the global economy and the related softness in the global prices of internationally traded goods would provide some offset.
Slow economic growth domestically would mean wage inflation was unlikely to rise in the near-term.
"Finally, the structural changes affecting the retail industry - especially the increased prevalence of online trading - meant the increase in price competition in recent years is likely to be enduring.''
