Australia's headline inflation rate moderated in the second quarter, coming in below market expectations and easing pressure on the central bank to raise interest rates again next month.

The Australian Bureau of Statistics reported on July 29 that the Consumer Price Index (CPI) rose 3.8% year-on-year for the three months to June, slightly below the 4.0% forecast by economists. Core inflation also edged lower, providing some relief for the Reserve Bank of Australia (RBA) ahead of its upcoming policy meeting.

According to the data, the trimmed mean measure of core inflation increased by 3.6% annually, just under the anticipated 3.7%. The Bureau noted that higher costs for housing, food, and non-alcoholic beverages were the primary drivers of the annual increase. Electricity prices surged 22.4% compared to the same period last year. Meanwhile, fuel prices fell 10.9% annually, largely due to a drop in global oil prices as geopolitical tensions in the Middle East eased.

This slight cooling of inflation is likely to influence the RBA's monetary policy direction going forward. On July 28, RBA Governor Michele Bullock did not rule out the possibility of further rate increases. Prior to the inflation release, markets were concerned the central bank might implement its fourth rate hike of the year next month. The latest figures have tempered those expectations.

Commenting on the economic outlook, Wee Khoon Chong, Asia-Pacific macro strategist at BNY Mellon, said the new data shows that Australian inflation remains sticky and has not yet established a definitive downward trend. He noted that while the data supports the RBA's relatively hawkish stance, its current strength is not sufficient to provide a clear justification for resuming rate increases.