The consumer price index rose by just 0.6 per cent in the December quarter, below market expectations, dragging annual growth down to 4.1 per cent, its slowest pace in two years.

Price pressures in Canberra eased even more abruptly, rising by 0.4 per cent - the equal lowest increase in the country - taking the annual rate down to 3.7 per cent, its slowest pace since September 2021.

Adding to evidence that living costs are decelerating quickly, the Australian Bureau of Statistics' monthly inflation gauge shows prices slowed to 3.4 per cent in December and underlying inflation has slowed to an annual rate of 4.2 per cent, down from 5.1 per cent in the September quarter.

Globally, the inflation slowdown is being driven by strengthening supply chains and concerted interest rate hikes by central banks, according to the International Monetary Fund, leading to marked falls in the cost of goods and energy.

This is showing up in the local inflation numbers, with tradable goods inflation falling by 0.7 per cent in the December quarter as prices for items like clothes, footwear, furniture and household appliances declined internationally.

But consumers still face big price rises for domestically produced goods and services, which rose 1.3 per cent in the quarter to be up 5.4 per cent from a year earlier.

Housing (1.5 per cent), insurance (3.8 per cent), electricity (1.4 per cent) and tobacco (7 per cent) all helped push prices higher. Rents are growing at an annual rate of 7.3 per cent while insurance premiums soared by a whopping 16.2 per cent, the biggest such increase in more than 20 years.

These effects were partially offset by 1.2 per cent falls in the cost of meat, seafood, fruit and vegetables as well as cheaper clothes and footwear (down 1.1 per cent), furniture (down 4.3 per cent) and appliances.

See the bottom of this article for more detailed breakdown of the changes.

Treasurer Jim Chalmers welcomed the result, saying headline inflation was "coming off really substantially".

"This is not mission accomplished but it's welcome and really encouraging progress," the Treasurer said.

"[But] people are still under pressure, and that's why we want to give a bigger tax cut for middle Australia."

Shadow treasurer Angus Taylor, however, said the ABS report showed that inflation was homegrown, growing too fast and was entrenched.

Mr Taylor said the government's revised tax cuts were merely a "band aid on a bullet wound".

"Families are feeling the pain of a 10 per cent increase in prices since the last election, and Labor's broken promise does not touch the sides," he said.

In its latest assessment of the global economy, the International Monetary Fund said inflation was receding faster than had been anticipated, opening the way for central banks to begin lowering interest rates later this year.

"Inflation is falling faster than expected from its 2022 peak, with a smaller-than-expected toll on employment and activity, reflecting favourable supply-side developments and tightening by central banks, which has kept inflation expectations anchored," the fund said.

Markets expect the Reserve Bank of Australia to keep its interest rates on hold at 4.35 per cent when it meets on February 5 and 6, and even before the latest inflation reading were pricing in rate cuts from August.

Deutsche Bank chief economist Phil O'Donaghoe said the fact that monthly underlying inflation had plunged from 7.2 to 4 per cent in 12 months was particularly encouraging, confirming that Australia was "in tune with the disinflation trend seen globally".

Mr O'Donaghoe said the RBA's hiking cycle was finished and predicted two rate cuts by the end of the year.

But HSBC chief economist Paul Bloxham is more cautious.

Mr Bloxham said that domestic inflation pressures still carried significant momentum and labour costs were high because of weak productivity.

In these circumstances, he warned that although interest rates have likely peaked, "it is too early to be talking about rate cuts".

Against this, Ai Group chief executive Innes Willox warned of the risk that the Reserve Bank holds interest rates high for too long and drives the economy into a recession.

"The economy may be slowing too rapidly and we may be looking at a hard rather than a soft landing," Mr Willox said. "The November increase in interest rates is yet to fully flow through and further dampening impacts may tip the economy into reverse."

But in its updated outlook for the Australian economy, the IMF has lifted its forecast for growth this year to 1.4 per cent - a 0.2 percentage point upgrade - and forecasts the pace of gross domestic product will accelerate to 2.1 per cent in 2025.

"The likelihood of a hard landing has receded, and risks to global growth are broadly balanced," the multilateral organisation said, predicting the world economy to expand by 3.1 per cent this year, a 0.2 percentage point improvement on its expectations in October.

It said the resilience shown by the United States and major emerging market economies, combined with the unexpectedly sharp deceleration in inflation, had improved prospects for a "softer-than-expected landing" in several major economies.

The fund projects global headline inflation to slow from 6.8 per cent last year to 5.8 per cent this year and 4.4 per cent in 2025, with a lot of the improvement being driven by the advanced economies, including Australia.

"Overall, about 80 per cent of the world's economies are expected to see lower annual average headline and core inflation in 2024," it said.

The IMF said inflation could fall even faster with increased pass though of lower fuel prices to consumers, a continued loosening of labour markets and reduced business profiteering.

"Such developments could allow central banks to move forward with their policy-easing plans," it said.

The IMF said the risks of a damaging wage-price spiral developing had receded.

"Wage growth has generally remained contained, with wage-price spirals not taking hold," it said.