The Australian Bureau of Statistics said on Thursday there was a trade deficit of $717 million in July, a turnaround of about $1 billion from last month's $351 million surplus.
The median market forecast was for a surplus $108 million for July.
The main reason for the return to a deficit was a rise of $822 million, or 29 per cent, in imports of fuels and lubricants, which includes oil, the ABS data showed.
Crude oil prices hit a record $US147 a barrel in July but have since receded to about $US109 a barrel.
The value of coal exports fell nine per cent, or $356 million, in July, seasonally adjusted.
Imports were up 3.8 per cent in July, while exports declined 0.8 per cent and fell for the first time in five months.
An indicator of the slowing domestic economy was the fall in imports of consumption goods and capital goods, which backpedalled 1.6 and 4.7 per cent, respectively.
"While imports bounced solidly, this was by no means a portent of renewed strength in domestic demand," Westpac senior economist Anthony Thompson said.
"The more important gauges of domestic demand, consumer and capital goods, remained weak."
Consumption good imports declined for the second straight month in July.
ANZ economist Alex Joiner said the growth in imports would not alarm the Reserve Bank of Australia (RBA).
"The Reserve Bank would be happy to see increased demand for imports was driven by something other than the strength of the Australian economy," Dr Joiner said.
"They still want to see growth in the Australian economy below trend."
The RBA lowered the cash rate by 25 basis points to seven per cent at its September board meeting on Tuesday.
It was the first interest rate cut since December 2001, ending a run of 12 successive rate rises.
"Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has slowed," RBA governor Glenn Stevens said in a statement after Tuesday's RBA rate cut.
ICAP senior economist Adam Carr said the higher price for coal in July, as measured by the RBA's commodity price index, led many to believe exports would have increased.
"So to see a fall in export values suggests that volumes were woeful," Carr said.
"The drop in coal probably isn't anything to worry about, it follows four very strong gains in previous months and is no doubt a correction from that."
CommSec equities economist Savanth Sebastian said there was no reason for doom and gloom as the softer coal exports were caused by supply disruptions and not a drop-off in demand.
Sebastian said coal terminals at Queensland's Hay Point and Dalrymple Bay were hit by bad weather in July.
Carr described the trade deficit as a "blip".
"As domestic demand continues to slow, consumer imports should remain weak and slow overall import growth, while export value remains buoyed by price gains."
St George Bank treasury economist Amanda Tan said the high Australian dollar in July also played a part in the trade balance returning to deficit.
"The deficit in July reflected a four per cent increase in imports as the exchange rate moved to a new 25-year high of 98.49 US cents," Tan said.
"This development in the Australian dollar was likely also a negative for exports."
The Australian dollar has lost about 15 US cents since mid-July, touching a 12-month low of 82.39 US cents on Wednesday.
