The Reserve Bank says that its latest inflation expectation survey has fallen to the lowest level in three years following a tepid economic recovery and uncertainty in the eurozone debt crisis.
The central bank's quarterly survey shows business managers forecast annual inflation to average 1.98% over the coming year, compared with 2% in the previous survey in May.
Two-year inflation expectations - to which the Reserve Bank pays particular attention - fell from 2.41% to 2.32%.