Inflation has slowed to its lowest growth rate since early last year, adding to evidence that high interest rates are working to dampen price pressures and strengthening the case for them to remain on hold.
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The annual inflation rate slowed to 4.9 per cent in July, according to the Australian Bureau of Statistics, down from 5.4 per cent the previous month. It is the softest result since February 2022.
Cheaper fuel, fruit and vegetables partially offset continuing big increases in housing costs.
Treasurer Jim Chalmers said the result was "encouraging".
"It's pleasing to see inflation is moderating but we know it will remain higher than we'd like for longer than we'd like," Dr Chalmers said.
He claimed the data showed the government's energy price relief plan was "helping take some of the sting out of power price rises" but reiterated that inflation remained the "primary challenge".
The ABS reported that energy prices increased 6 per cent in July to be up 15.7 per cent from a year earlier, and would have been higher without government action.
"If we exclude the impact of [Energy Bill Relief Fund] rebates, electricity prices would have recorded a monthly increase of 19.2 per cent," ABS's head of prices statistics Michelle Marquardt said.
The statistician added that food inflation was continuing to ease because favourable weather was helping boost supply.
The slowdown in underlying inflation, which excludes volatile items, was more modest. It grew by 5.6 per cent in July after rising by 6.1 per cent the previous month.
Building approvals, meanwhile, fell for a second consecutive month to 12,668 dwellings. Commonwealth Bank economists reckon new approvals per 100,00 people is now close to its lowest on record.
The results, particularly regarding inflation, are expected to figure prominently in Reserve Bank of Australia interest rate deliberations. Markets tip the central bank will leave rates on hold next week for a third consecutive month.
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Markets had expected inflation to grow by 5.2 per cent in July and Betashares chief economist David Bassanese said the weaker than expected result "further cements the case for the RBA leaving interest rates unchanged next week".
The economist tips the official cash rate to remain on hold for the rest of the year and early next year, with the first rate cut in April 2024.
"Provided overall inflation keeps moderating, Australia may not need to suffer an extended period of below trend growth, or even a so-called per capita recession," Mr Bassanese said.
KPMG chief economist Brendan Rynne said the inflation result, combined with weakening household consumption and retail trade data and evidence of a softening labour market, added to the case for rates to stay on hold.
Dr Rynne said the disinflation in July was mainly driven by cheaper goods but there was evidence of a "pull back" in the cost of services, which is significant because the RBA is concerned that inflation in this sector will prove to be stubborn, necessitating interest rates to stay higher for longer.
