Prices of goods and services in Australia has risen at a much slower pace that the country registered on Wednesday a 13-year low inflation rate of 1.2 per cent.

The lower inflation rate was because of large declines in the prices of fruit and vegetables and other food items such as bread.

According to the Australian Bureau of Statistics (ABS) prices of cheese went down 1.9 per cent in the past 12 months, meat and seafood by 2.1 per cent, children's clothes 1.8 per cent, cars 1.6 per cent and household appliances 2.7 per cent.

Their decline was sufficient to negate the price increase in other items such as rent which jumped 4.4 per cent, electricity 10.7 per cent, gas 8 per cent, water and sewage 9.4 per cent, childcare 9.8 per cent, education 6.1 per cent, insurance 7 per cent and petrol 2.5 per cent.

ABS noted that prices of goods that could be imported went down by 2 per cent in the past year, while products made locally were hiked 3.3 per cent for the same period.

Among the food items that had major cuts in prices are banana by almost 40 per cent to just $2.86 per kilogramme, chicken by 6.2 per cent, vegetables by 3.3 per cent and lamb 2.2 per cent. On the average, food prices decreased 2.7 per cent.

The official data places a question mark on claims by Aussies that cost of living is on an upswing. Treasurer Wayne Swan said the record-low inflation rate matches other favourable economic data logged under the Labor-led government.

"It is rare in our economic history to have low unemployment, a huge investment pipeline, healthy consumption and contained inflation at the same time," Brisbane Times quoted Mr Swan.

However, shadow treasurer Joe Hockey claimed otherwise. He said price increases on some items and service affected Australians who could lead avoid paying them. He cited electricity prices which went up 64 per cent, water 59 per cent, insurance 35 per cent and education 31 per cent in the last five years.

Mr Hockey stressed that the price hikes in the four items he mentioned were registered before the carbon tax which was collected beginning July 1.

Since the inflation rate was lower than the Reserve Bank of Australia's (RBA) target of 2 to 3 per cent, there are now more calls for the RBA to cut again the overnight cash rate in August. However, RBA Governor Glenn Stevens said the key lending rate would likely remain unchanged.

HSBC chief economist Paul Bloxham agreed that there is room for the RBA to cut rates, but added the central bank's move depends more on global developments, not inflation rate data. Since the RBA just cut rates by 75 basis points in May and June, Mr Bloxham favoured another rate cut by September instead of August.

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