The latest Reserve Bank survey has found inflation expectations have fallen again due to a sharp fall in fuel costs and the deepening downturn.
The bank's quarterly survey of expectations show business managers forecast annual inflation to average 2.3% over the next two years compared to 2.7% in the previous survey.
The survey also shows firms expect inflation to average 2.2% over the coming year compared to 2.8% in the November survey.
Expectations of the economy's fortunes have also been slashed, with respondents picking the economy to contract 0.1% this year, compared to growth of 1.5% last survey.
Since July, the Reserve Bank has slashed interest rates from 8.25% to 3.5% to combat the financial crisis and the global recession.
Economists expect the Reserve Bank to cut the Official Cash Rate rates to at least 3% next month.
