The latest inflation figures show the economy is operating at spare capacity, Treasurer Wayne Swan says.

The consumer price index, released on Wednesday, showed the annual rate of inflation falling to 1.3 per cent in the year to September compared to 1.5 per cent in the year to June.

The annual rate of inflation is now at its lowest level in 10 years, and down from a rate of 5.0 per cent a year ago.

Asked about price pressures, Mr Swan said it was “very clear” inflation would remain subdued in the near term.

“What we’re seeing here today is there is still a substantial spare capacity in our economy,” Mr Swan told reporters in Canberra.

Mr Swan said future growth depended on alleviating capacity bottlenecks.

“What we have to do is put in place a range of policies that ensure we begin to grow even more strongly and we don’t see a return to capacity constraints we saw in the past,” Mr Swan said.

Mr Swan said a hike in the cost of utilities, such as electricity, water and sewerage, in some states had impacted on the quarterly figure.

“When you look at the basket in total, that has had a very big impact,” he said, adding that it accounted for 0.4 of one per cent.

Mr Swan refused to blame directly Labor state and territory governments for the rises, but said there were some “unusually large increases” in electricity prices charged by state energy providers.

The outlook for business investment remained weak.

“Business confidence is much stronger, but the actual intention to invest is still weak,” Mr Swan said.