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There could be scope for the Reserve Bank to cut the cash rate substantially in coming months after a private inflation index recorded its lowest reading since 2005.
The TD Securities-Melbourne Institute inflation gauge dropped 0.2 per cent in December, its third consecutive monthly fall, according to The Sydney Morning Herald.
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The decline brought the annual rate of inflation to just 2.2 per cent compared to three per cent in November last year.
Contributing most to the fall in inflation were declines in the cost of fuel, fruit and vegetables.
The Reserve Bank will next meet to decide on the fate of the cash rate on Tuesday February 3.
