Inflation was flat in the fourth quarter, according to the Australian Bureau of Statistics, despite economists largely expecting a 0.6% increase.
The change will fuel expectations of a rate cut in February.
The Consumer Price Index showed no change in the headline rate during the December quarter, while the weighted mean showed a rise of 0.5%.
Domestic holiday travel, accommodation, rents and telco equipment prices all rose, while pharmaceutical products, fruit, vegetables and AV equipment all recorded decreases.
It takes the weighted mean annual CPI growth to 2.6%, in the middle of the Reserve Bank's target inflation band of 2-3% per annum.
The result is nonetheless likely to add to speculation of an interest rate cut, as the market had expected the underlying measure to show a 0.6% rise.
Australian shares rise despite weak US leads
The Australian stock market was trading higher at noon, with the S&P/ASX200 index up 31.5 points or 0.8% to 4255.7.
While all major traded stocks were trading higher, Alacer Gold lost almost a tenth of its price, down 9.57% to $9.36.The gold miner released its fourth quarter update this morning, which showed its production had increased 1% over the previous quarter.
Also lower was Atlas Iron, which tumbled 4.6%, and Aristocrat Leisure, which shed 3.41%.
Index predicts below-trend growth
A leading index of economic activity is projecting the Australian economy will slip below the long-term growth trend over the coming months.
The Westpac-Melbourne Institute leading index, which predicts the growth rate of the Australian economy three to nine months into the future, was 1.6% in November – well below the long-term trend of 2.9%.
It is a significant fall from the 2.3% figure calculated in October.
"The growth rate in the index has slowed from the 4.5 per cent, which was reported for August, and is now well below trend," Westpac chief economist Bill Evans said.
"It appears that the boost to above trend growth we saw in July and August has quickly faded and the outlook has evolved into a 'below trend' story.
"This message is consistent with Westpac's own forecasts for 2012. We are currently forecasting growth in 2012 of three per cent, which is slightly below trend growth for the economy."
Alesco profit triples but conditions poor
Building products distributor Alesco Corporation has tripled its first-half profit to $7.2 million in the half ending November 30, 2011, with revenue at $274 million, although the company says it does not expect a recovery in housing any time soon.
"Trading activity through December and early January was difficult and tough market conditions are expected to continue," the company said in a statement.
Westpac, Suncorp rumoured to cut more jobs
Westpac and Suncorp are rumoured to inflict more job cuts on the financial industry, according to the Australian Financial Review.
The publication has reported Westpac is considering shedding 150 contractors, while Suncorp is also said to be shedding 71 jobs.
"We expect there will be a decrease in staff numbers this year but we have no specific targets on the number of job reductions," Westpac spokeswoman Supreet Gosal told the publication.
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