Interest rates are expected to remain at their record lows until well into 2018, after a collapse in fruit and vegetable prices offset soaring electricity bills and kept inflation below the central bank's target range.
The consumer price index rose 0.6 per cent in the September quarter, missing market forecasts of 0.8 per cent, and taking the annual rate of inflation to 1.8 per cent, Australian Bureau of Statistics figures show.
Inflation has now been under the Reserve Bank of Australia's target band of two to three per cent since the end of March.
RBC head of fixed income strategy Su-Lin Ong said the key core measures of inflation remain benign, and are consistent with the RBA leaving interest rates on hold for some time.
"Core inflation may have increased but is showing limited signs of momentum," she said.
"And looking forward, we see little reason for any acceleration given continued tepid wages growth and annual unit labour cost growth which has averaged around flat for the last few years."
JP Morgan analyst Ben Jarman said the latest inflation numbers would not deliver anything new to the RBA but are an uncomfortable reminder that financial conditions are too tight.
"There is a lot at stake in hoping that growth will recover sufficiently to achieve the inflation target over time," he said.
One positive of slow price growth, Mr Jarman said, is that it preserves the value of real wages amid rising household debt levels.
Commsec analyst Craig James said households hit by rising energy bills were also benefiting from lower food prices, which have taken their biggest annual drop in five years.
Vegetables were the main contributor, with prices tumbling 10.9 per cent in the September quarter.
Mr James also said he expects the RBA to stay on the interest rate sidelines until late 2018.
The weaker than expected data sent the Australian dollar to a three month low of 77.17 US cents, after trading at 77.81 US cents just prior to its release.
Source: fiveaa.com.au
