Also, consumer inflation will continue to trend below the Reserve Bank of Australia's target band of 2-3 percent since September quarter of 2014.
The CPI rose 1.5 per cent through the year to December quarter 2016. Economists had been picking quarterly inflation of 0.2% for an annual pace of 1.2%.
And even if it perks up in the current quarter because of the jump in oil and petrol prices in January that will be welcomed by the RBA which is looking for some stirring in inflationary pressures this year to boost incomes and nominal economic growth.
While economists expected inflation would rise above 1 per cent in the December quarter, the increase was slightly larger than expected.
The headline consumer price index rose by 0.5% in Q4, lower than 0.7% seen in Q3 and expected for the last quarter as well.
"The Australian economy has grown at a rate below its potential of about 1.275 percent for six out of the past eight years, which means there is more people willing to work than there are jobs, it means businesses aren't using all their computers, or perhaps manufacturers aren't using all the machines they own".
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The December inflation quarter data will be released on Wednesday by the Australian Bureau of Statistics.
The RBA's closely-watched core inflation figure, which is inflation with volatile items stripped out, was 1.55% for the year, and 0.4% for the quarter.
Rising costs for tobacco (7.4 per cent), automotive fuel (6.7), vegetables (2.5) and restaurant meals (1.1) were some of the biggest contributors to rising prices, but weren't enough to push the result closer to the Reserve Bank's target.
These rises were partially offset by falls in furnishings, household equipment and services (-0.8 percent) and communication (-0.8 percent).
Vegetable prices have risen 12.5% through the year to December quarter 2016.