Rate rise now off agenda for months

AAP

HOMEOWNERS look set to be spared an interest rate rise from next Tuesday's Reserve Bank board meeting after key elements of the latest inflation figures proved unexpectedly benign.

It could even mean a rate rise is off the agenda until late in the year, economists say.

The data was an unexpected bonus for the Labor government's election campaign after its credibility as an economic manager was brought into question this week.

While the consumer price index (CPI) did show annual inflation above the central bank's two to three per cent target band, underlying measures of inflation - more critical to the interest rate outlook - proved less troublesome than feared.

Treasurer Wayne Swan said he was encouraged to see the trend in underlying inflation that saw the average annual rate drop to its lowest level in three years at 2.7 per cent.

"This is the measure the Reserve Bank pays particular attention to," Mr Swan told reporters in Sydney.

Still, opposition treasury spokesman Joe Hockey said the CPI outcome showed that everyday costs of living have gone up "dramatically" in the past year.

The CPI for the June quarter released on Wednesday rose 0.6 per cent, for an annual rate of 3.1 per cent.

"For the everyday cost of living for everyday Australians, the bills that they have to pay have gone up dramatically," Mr Hockey told reporters in Sydney.

He said utility prices had gone up by an "enormous" amount in the past year - electricity up 18.2 per cent, water up 14 per cent and gas up 10.3 per cent.

He said this was a direct reflection of the incompetence of governments trying to manage their own infrastructure and utilities.

"It also indicates that Labor can't be trusted with money," he said.

Mr Swan said the government understood that many families were still finding it tough to make ends meet but Labor's successive tax cuts would have helped with the rising cost of living.

"We don't say that they're the be-all and end-all. It's a bit of relief but I understand that the pressures are significant out there," he said.

Economists had forecast a much larger 1.0 per cent rise in the June quarter CPI, for an annual pace of 3.4 per cent.

Underlying measures of inflation averaged 2.7 per cent in the 12 months to June, down from 3.05 per cent in the year to March.

Both measures of underlying inflation - the trimmed mean CPI and the weighted median CPI - rose 0.5 per cent in the June quarter, when economists' forecasts had centred on a 0.8 per cent increase.

"If you were thinking the RBA might make this federal election campaign interesting, think again," Macquarie Bank interest rate strategist Rory Robertson said.

"There will be no interest rate hike next week."

The inflation figures came a day after a Newspoll showed a dramatic swing in support towards the coalition as the better economic manager and best able to control inflation.

"We view the easing of inflationary pressures as positive for the ruling Labor government," Nomura Australia chief economist Stephen Roberts said.

Business lobby group, the Australian Chamber of Commerce and Industry, described the data as "unambiguously good news" for both business and consumers.

"We believe it actually lays the bedrock for no official interest rate increases until at least Christmas," Greg Evans, the chamber's director of industry policy and economics, told reporters in Canberra.

The next round of official inflation figures are due in late October.