An unexpected drop in headline inflation has eased fears of another imminent interest rate hike.

The latest Australian Bureau of Statistics data showed headline inflation falling from 4 per cent to 3.8 per cent in June, the lowest level since the outbreak of the US-Iran war in February.

Trimmed mean inflation, the preferred measure by the RBA, remained steady at 3.6 per cent, defying central bank predictions of a rise to 3.8 per cent.

The fall in inflation coincided with transport costs moderating for the month, ABS head of price statistics Rachel McCrick said.

“Lower world oil prices as a result of some stabilisation in the Middle East in June contributed to fuel prices falling 10.9 per cent in the month,” she said on Wednesday.

“The federal government’s fuel excise relief measures, which contributed to lower automatic fuel prices in April and May, also remained in place.”

The fuel excise measures reduced the cost of fuel by 32 cents a litre during the month.

However, the measure was reduced to just 16 cents in July, and will be phased out entirely from Sunday.

Treasurer Jim Chalmers said the inflation figures were reassuring following a period of economic volatility.

“It’s an encouraging outcome that shows we’ve made progress on inflation since the budget, even in the face of intense global uncertainty,” he said.

“Treasury has warned that the next phase of the conflict could be more challenging for the global economy, with the oil market now more vulnerable.”

Quarterly inflation numbers showed headline inflation falling from four to 3.9 per cent.

Meanwhile, the trimmed mean rose from 3.5 per cent in the March quarter to 3.6 per cent in the June quarter.

Housing remained the biggest contributor to inflation for the monthly figures in June, rising by 6.8 per cent.

“Annual inflation for new dwellings has reached its highest level in almost three years, at 5.8 per cent,” McCrick said.

“This was driven by builders passing on higher material and labour costs.”

The head of economic research at Oxford Economics Australia, Harry Murphy Cruise, said the RBA would be focused less on the headline figures and more on the breadth of price rises.

“Underlying inflation is not just resisting pressure to rise. In quarterly terms, it is continuing to ease,” he said.

“All that backs up our view that the RBA will keep rates on hold next month.”

The Reserve Bank is due to meet on August 10 and 11 to decide whether interest rates will rise from current levels of 4.35 per cent, or keep them on hold.

The bank’s governor Michele Bullock said on Tuesday higher interest rates were slowing down the economy as expected.

The past four years of above-target inflation had been a cautionary tale for the Reserve Bank board, she said.

“The longer it is out of target, the more concerned that the board becomes,” Bullock told a fundraising lunch at the Anika Foundation in Sydney.

“It is quite at the front of their minds. In the May forecast we had it coming back under three (per cent) towards the end of 2027, and that’s a long time to be above target.”

–AAP