Inflation has slowed to its lowest level in more than two years, but domestic price pressures remain stubborn and will slow any move to cut interest rates.

Stats NZ figures showed consumer prices rose 0.5 per cent in the three months ended December, taking the annual inflation rate down to 4.7 per cent from 5.6 per cent, the lowest since June 2021.

The figures were exactly in line with economists' expectations, but below the Reserve Bank's November forecast of a 0.8 per cent rise.

Higher costs of building and running a house, such as rates, rent and insurance, drove the quarterly increase offsetting cheaper food and fuel.

"The price of housing increased over 2023. Rent is 4.5 per cent more expensive than at the end of last year," Stats NZ senior manager of prices Nicola Growden says.

"Prices for about one-third of all items in the CPI basket decreased in the December 2023 quarter, the most in over three years."

However, the numbers showed that domestic factors - so-called non-tradables - are now the dominant driver of inflation, rising 1.1 per cent for the quarter and 5.9 per cent for the year.

Core inflation measures, which eliminate more volatile components, were at 5 per cent.

Economists predicted a 0.5 per cent increase in prices for the quarter, and 4.7 per cent for the year.

In November the RBNZ expressed its impatience at the slowness in inflation's decline and even threatened a further rate rise if progress was not made.

Financial markets are putting an 80 per cent chance of an OCR cut to 5.25 per cent in May, and definitely two cuts by the end of the year.

Recent numbers have shown the economy slowing markedly with weaker activity in the manufacturing and services sectors, and soft consumer spending, with some economists already suggesting the economy is in recession which would back the case for lower rates.

- Gyles Beckford/ RNZ