Inflation remained under control during the final quarter of 2012 largely as a result of falling prices of vegetables and medicine, which gives the central bank room to cut interest rates this year if it feels the economy is weakening.
According to the Australian Bureau of Statistics Inflation for the year ending December was just 2.2, up from 2 per cent for the year ending September.
Many economists had predicted the inflation rate would rise by 0.5 per cent, producing an annual rate of 2.5 per cent.
Tame inflation means the chances the Reserve Bank of Australia will cut rates when it meets on February 5th is higher despite the fact an actual cut is unlikely because the global economic outlook has improved and the price of iron ore has recovered.
Renters, holidaymakers and drivers all felt the impact of big price increased for the quarter ending December as the cost of fuel, rents and holiday accommodation increased by 2.6 per cent, 0.8 per cent and 6.2 per cent respectively.
Improving agricultural conditions resulted in a 5.7 per cent decline in the cost of vegetables, whist the cost of pharmaceuticals fell by 3.5 per cent.
Prices in Canberra and Melbourne rose much faster than they did in Darwin and Sydney.
Prices rose around four times as fast in Melbourne and Canberra as they did in Sydney and Darwin.
Official interest rates currently stand at a record low of 3 per cent after the central bank decision to cut rates by 25 basis points during December. The Reserve Bank of Australia has cut interest by 175 basis points since it began easing in 2011.
A version of this post first appeared on Money-AU