SYDNEY (AFP) - Australia unveiled the lowest annual inflation in 10 years on Wednesday, cutting the chances of a big rate hike next week as the central bank bids to keep economic recovery on track.
The September consumer price index figure was up 1.3 percent on-year, the smallest increase since 1.1 percent in the June quarter of 1999.
Quarterly inflation was at 1.0 percent, slightly above analyst forecasts.
Economists said the figures pointed to a modest rate rise of 25 basis points next Tuesday, rather than the 50 basis points which had been widely tipped.
Average underlying inflation measures were down at an annual rate of 3.5 percent in September, below the 3.9 percent posted in June but still above the official target of 2.0 to 3.0 percent.
Australia lifted rates off a five-decade low of 3.00 percent to 3.25 percent this month, becoming the only G20 country to ease monetary stimulus in the wake of the global financial crisis.
Treasurer Wayne Swan said the quarterly figure was driven by unusually large price rises in electricity and water services and that the numbers overall indicated the broad easing of price pressures.
Headline inflation of 1.3 percent compared to 5.0 percent a year ago, he said, adding that the economy was running "well below capacity".
"Inflation in Australia has moderated further as the impact of the global recession has continued to wash through our economy," he told reporters.
"That reflects the fact that our economy is operating well below capacity and of course... it's hard to say there's too much growth in the economy."
Australia has avoided recession during the financial crisis and surged to 0.6 percent growth in the second quarter, but Swan said business investment remained weak and unemployment would continue to rise.
Economist Craig James said the central Reserve Bank of Australia (RBA) would be heartened by the figures and would likely raise interest rates "but only at a modest pace".
"It will be raising rates most likely by a quarter of 1.0 percent," the Commsec chief economist told Sky News.
"But we can't rule out the fact that with this good inflation outcome today, the Reserve Bank may stay on the sidelines, may decide to leave interest rates unchanged in November."
Macquarie Research associate economist Ben Dinte said the figures would have been stronger but for a fall in fresh food prices.
"This is a reminder that inflation will remain on the RBA's radar in the year ahead, but is not likely to force an overly aggressive response in the near term," he said in a statement.
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