You've missed the WindowsBits option in the constructor and you should also test for Z_STREAM_END in the main loop.

This is how I would write the loop.

#! perl -slw
use strict;
use Compress::Raw::Zlib;

my $o = new Compress::Raw::Zlib::Inflate(
                  WindowBits => WANT_GZIP
                  );

binmode STDIN;
my $status;

while( read( STDIN, my $in, int( rand 1024 ) ) ) {

    $status = $o->inflate($in, my $out) ;

    print $out 
        if $status == Z_OK or $status == Z_STREAM_END ;

    last if $status != Z_OK ;
}

die "inflation failed\n"
    unless $status == Z_STREAM_END ;
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