(Reuters) -Australia's Coles flagged deflation in its fresh produce and meat products, with a moderation in price rises across its broader packaged categories amid a cost-of-living crisis sparked by stubbornly high inflation.

The supermarket operator, which competes with bigger rival Woolworths, posted a 3.4% rise in third-quarter revenue on Tuesday, reflecting a jump in sales at its primary supermarkets operation helped by strong volume growth.

Inflation numbers in Australia have eased over the last quarter but still remains comparatively high. Signs of cooling inflation helped drive sales of Coles' key grocery items.

The company posted sales of A$10.03 billion ($6.58 billion) for the quarter, with revenue from supermarket business contributing A$9.07 billion, a 5.1% rise from a year earlier.

Australia's No.2 supermarket operator, which operates more than 800 supermarkets across the country, indicated volumes at its major supermarket operations remained positive during the early days of the fourth quarter.

Sales revenue from liquor operations dropped 1.9% as customers cut down on discretionary spending, Coles said.

"Overall Coles' third-quarter result was above our expectations in supermarkets but below our expectations in liquor," said E&P Capital retail analyst Phillip Kimber.

Coles' deliberate strategy to transition from less profitable bulk sales and adjusting promotional mix across e-Commerce channels is impacting liquor sales growth rates, he added..

Coles and Woolies are currently under local regulatory and political scrutiny over potential price gouging, allegations that Coles has denied.

The two firms command nearly two-thirds of total sales in the Australian supermarket sector and have thrived amid high inflation through much of last year.

The supermarket chains are facing a senate and a competition regulator inquiry into how they set prices for the products they offer at a time when they have been accused of using their market dominance to raise shelf prices.

($1 = 1.5237 Australian dollars)

(Reporting by Rishav Chatterjee and Ayushman Ojha in Bengaluru; Editing by Anil D'Silva and Rashmi Aich)