The July figure was well below a median forecast of 0.9 percent inflation in a Reuters poll of six analysts, and a 1.0 percent outlook from a June central bank survey.

In July last year, the CPI rose 1.0 percent. Inflation typically picks up its pace in July due to the effect of the winter vacation period in the southern hemisphere.

Inflation in the 12 months through July totaled 10.6 percent compared with 11.0 percent in the 12 months to June and 9.6 percent in the 12-month period through July 2005, the ministry said.

In July this year, inflation was fueled by a 4.0 percent increase in education-related prices and a 3.1 percent jump in the leisure sector.

Battling inflation is a government priority after consumer prices rose an unexpectedly high 12.3 percent last year, doubling from 6.1 percent in 2004.

The cornerstone of the government's anti-inflation policy is to persuade manufacturers and retailers to lower and freeze prices on a wide range of consumer staples.

But many economists say this is just a short-term fix and recommend instead measures to cool the economy, which grew at a swift 9 percent rate in each of the last three years.

While the government aims to extend price accords, the central bank is working to nudge interest rates higher by strictly adhering to its monetary program targets and raising bank reserve requirements.

But salary hikes -- like the 27 percent increase to the minimum wage announced last week -- coupled with increased government spending are seen pressuring prices higher.

Economists in the recent Reuters poll forecast 2006 inflation at 11.1 percent.

The government's budget puts inflation at 8.6 percent this year, and the central bank is projecting 2006 inflation at between 8 percent and 11 percent.