(Bloomberg) -- A gauge of Australian monthly inflation cooled in July, suggesting price pressures began to ease in the current quarter though not fast enough to warrant early interest-rate cuts.

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The consumer price indicator climbed 3.5% from a year earlier, down from 3.8% and just above economists’ estimate of 3.4%, data from the Australian Bureau of Statistics showed Wednesday. The trimmed mean core measure, which smooths out volatile items, advanced 3.8% versus 4.1% a month earlier.

The currency edged up 0.2% while stocks extended losses following the release. Money markets are still pricing a first rate reduction in December.

The data come after RBA Governor Michele Bullock earlier this month said she doesn’t expect rate cuts this year and indeed warned further policy tightening may still be needed. The rate-setting board left the benchmark at a 12-year high of 4.35% three weeks ago, saying it remains vigilant to upside risks for inflation.

The RBA’s goal is to bring consumer prices back within its 2%-3% target.

Energy subsidies from both national and state governments to households resulted in a 6.4% fall in July, the data showed.

“Excluding the rebates, electricity prices would have risen 0.9%,” Leigh Merrington, ABS acting head of prices statistics, said in a statement.

What Bloomberg Economics Says...

“The CPI data will likely feature heavily in the Reserve Bank’s deliberations at its Sept. 24 meeting, along with upcoming 2Q GDP numbers. We expect the RBA to stay on hold and keep its tightening bias to ensure inflation expectations remain contained.”

— James McIntyre, economist

— For the full note, click here

The RBA’s hawkish message underlines its struggle to rein in inflation — the bank having nudged back its timing for the gauge to return to the target midpoint. Australia’s position contrasts with counterparts from New Zealand to Canada and the UK that have already embarked on easing cycles. The Federal Reserve is also laying the ground to begin cutting rates next month.

The RBA adopted a different strategy to peers to contain the post-pandemic inflation outbreak as it wanted to preserve employment gains at the same time. Australia hiked at a slower pace than counterparts which resulted in its benchmark rate being about 1 percentage point lower than the Fed’s.

The RBA has held rates this year, while highlighting that aggregate demand still exceeds the economy’s supply capacity. Bullock has expressed a willingness to be patient as she seeks to slow inflation without choking off economic growth. The bank’s forecasts show core CPI only returning to the target band in late 2025.

Markets and economists expect the RBA will leave rates on hold again at next month’s meeting.

The CPI report showed:

• The most significant contributors to the annual rise were housing, up 4%, food and non-alcoholic beverages climbed 3.8% and alcohol and tobacco by 7.2%

• Rents increased 6.9% for the year to July, down from a rise of 7.1% in the 12 months to June, reflecting continued tightness in the rental market in capital cities

• Higher prices for strawberries, grapes, broccoli and cucumbers drove fruit and vegetable prices to their largest annual rise since December 2022

--With assistance from Shinjini Datta and Garfield Reynolds.

(Adds further details from report, markets.)

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