A weaker than expected spike in food prices and continuing woes for the retail sector have likely contributed to a cooling in Australia's inflation rate.
The consumer price index rose 0.2 per cent in the June quarter, missing economists' expectations for a 0.4 per cent increase.
Inflation rose 1.9 per cent in the year to June 30, figures from the Australian Bureau of Statistics on Wednesday showed, dragging the headline rate back below the Reserve Bank of Australia's two-to-three per cent target band.
Prices fell during the quarter across several sectors, including transport, recreation and culture, and communication.
Economists, however, singled out the decline in food prices as the major contributor to the lower than expected numbers.
"The downside on headline came mostly from food, where market expectations were quite lofty given the spikes in some fruit prices after Cyclone Debbie, but that was offset by seasonal pull-backs elsewhere," JP Morgan economist Ben Jarman said.
Clothing and footwear prices also fell 0.3 per cent, unusually for a June quarter, which reveals the continuing struggles of the retail sector, Mr Jarman said.
The weakness was further bolstered by the expected decline in auto fuel prices.
Prices rose in health services and for alcohol & tobacco, but these were driven by regulated price increases such as the annual increase in private health insurance premiums and flow-on effects from the federal excise tax increase.
What is significant, Westpac economist Justin Smirk said, is the lack of price pressure in some major retail sectors.
"Overall the June quarter CPI continues to highlight the lack of any broad inflationary pressures in the Australian economy," he said in a note.
"While core inflation has drifted up to just under the bottom of the RBA's target band - on the back on a lift in housing cost, it is hard to see how it can accelerate much further without broader price gains."
Underlying inflation, which strips out volatile price movements, showed a quarterly rise of 0.5 per cent, taking the annual rate to 1.8 per cent.
The quarterly numbers are likely to dampen market expectations for a rate increase, with most economists confident that the Reserve Bank will hold rates at least for the rest of this year.
RBA Governor Philip Lowe reaffirmed that sentiment on Wednesday, indicating at a speech in Sydney that he is in no hurry to join the other central banks around the world in hiking official rates.
The Australian dollar fell nearly a third of a cent to a low of 78.97 US cents after the release of the figures and Mr Lowe's speech and remains at 78.99 US cents at 1518 AEST.
