Annual inflation slowed to 3.5% in July from 3.8% in June, but fell short of the 3.3% forecast and remains well above the Reserve Bank's 2.5% target, the Australian Bureau of Statistics reported. The RBA's preferred underlying inflation measure held steady at 3.6%, defying expectations it would moderate.

Economists said the disappointing figures raised the prospect of a rate rise as soon as September, when the RBA meets next. "We think the July CPI leaves little room for the RBA to do anything other than follow through on its hawkish posturing," said Phil O'Donaghoe, chief economist at Deutsche Bank. The RBA held the cash rate at 4.35% on 11 August, but minutes from that meeting showed board members thought another hike this year was "quite possible" and would likely move if price pressures persisted.

Housing costs remained a drag, with building prices up 5.7% and rents up 3.6% through the year. The end of fuel excise relief in July pushed petrol prices up 7.5% in the month, Guardian business reports.