Australia's consumer price index ( CPI) rose 0.4 percent in the December quarter, for an annual rate of 2.7 percent, the Australian Bureau of Statistics (ABS) data showed on Tuesday.
Economists' forecasts for the headline consumer price index had centered on a rise of 0.7 percent in the quarter, for an annual pace of 3.0 percent.
The inflation rate in the September quarter was 0.7 percent, for an annual rate of 2.8 percent.
Australia's economists on Tuesday said weaker than expected inflation figures for the December quarter may not prevent interest rate rises in 2011.
One of the world's leading investment banks, JP Morgan economist Ben Jarman said he doubted the underlying inflation figure, well inside the central bank's target of two to three percent, will stop the Reserve Bank from raising the cash rate.
Banking giant HSBC chief economist Paul Bloxham said the CPI figures were significantly below market expectations.
With low unemployment and a strong overall economic outlook, Bloxham said he expected inflation to rise in the year.
"(That) means that it's likely that the Reserve Bank will need to continue to lift interest rates."
Australia's Commonwealth Bank economist James McIntyre also said the December quarter was weaker than expected.
He said the lower than expected CPI could see the central bank stay on hold into the September quarter of 2011./.