Low inflation is good news for households and gives more confidence to businesses, Finance Minister Bill English says.
The Consumers Price Index fell in the December quarter, taking the annual inflation rate to 0.8 percent.
Mr English said that will help purchasing power but may affect pay rises.
He said expectations of increases based on two to three per cent inflation may be a bit high.
"We've got a pretty rigourous labour market at the moment, there's plenty of demand for skilled people, even in the public service, we want to make sure we've got public servants who feel they are well motivated and have a fair deal."
Mr English said public servants could expect a smaller wage increase this year because of the low inflation.
He said teachers and nurses are due for a round of pay negotiations.