Treasurer Wayne Swan says the lowest annual inflation rate in 13 years is a remarkable achievement when the economy is growing at an impressive rate.
However, economists do not believe the benign inflation readings released on Wednesday are enough on their own to prompt an interest rate cut by the central bank in August.
The annual consumer price index (CPI) was just 1.2 per cent in the 12 months to June, its lowest level since 1999, and down from 1.6 per cent in the year to March.
This is well below the Reserve Bank of Australia's (RBA) two to three per cent inflation target band.
The Australian Bureau of Statistics said the CPI rose 0.5 per cent in the June quarter, compared with economists' forecasts that centred on a 0.6 per cent increase.
"This is a remarkable achievement, especially against the backdrop of impressive economic growth," Mr Swan told reporters in Sydney.
More crucial to the interest rate outlook, underlying inflation measures also were contained.
On average they grew by 0.6 per cent in the quarter, which saw their annual rate down at 1.95 per cent, from 2.15 per cent previously.
This was the lowest average annual rate since these measures - the trimmed mean and weighted median - were introduced in June 2003.
Mr Swan said Australia's economic fundamentals were "rock solid" with contained inflation, lower interest rates and low unemployment.
"That is a remarkable trifecta for Australia," Mr Swan said.
These were achieved during a period of heightened global uncertainty, as well as some difficult structural transition, which were impacting certain sectors of the economy.
"Contained inflation is also a dividend of the government's fiscal discipline, and has been vital to the recent interest rate cuts from the RBA," Mr Swan said.
The Reserve Bank of Australia cut the cash rate by 75 basis points during May and June.
But Mr Swan refused to speculate whether the central bank would cut the cash rate any further, saying the RBA made its decisions independently of government.
RBC Capital Markets head of strategy Su-Lin Ong said well-behaved inflation does not strengthen the case for an August rate cut on its own.
"Unless global stress and credit markets deteriorate further, the RBA may well elect to stay on the sidelines in August," she said, adding recent communication from the RBA hinted at a reasonably high bar for near-term policy action.