Inflation eased again in July but some economists believe it has heightened the risk of an interest rate hike. (ABC News: Danielle Bonica)
Headline inflation rose to 3.5 per cent in the year to July, making it lower than before the Iran War in February.
However, the RBA's preferred measure of inflation did not budge, staying at 3.6 per cent for the third straight month.
Economists say the figures have increased the risk of a rate hike by the RBA, with some considering its September meeting "live".
Inflation is continuing to cool with the annual headline rate rising to 3.5 per cent in July, down from 3.8 per cent in the year to June.
The figures released by the Australian Bureau of Statistics on Wednesday showed the largest contributor to annual inflation in July was housing, which rose by 5 per cent, followed by food and non-alcoholic beverages, and recreation and culture.
Annual inflation for transport also increased 1.6 per cent in July, up from 0.1 per cent in the year to June.
"On a monthly basis, automotive fuel prices rose 7.5 per cent in July after falling for three months in a row," said the ABS's head of price statistics Rachel McCririck.
The headline rate of 3.5 per cent in July was slightly higher than the 3.3 per cent figure largely predicted by economists, however the annual rate is now lower than it was before the start of the Iran war in February.
The underlying inflation or "trimmed mean" figure preferred by the Reserve Bank of Australia (RBA), which strips out volatile items like fuel, remained unchanged at 3.6 per cent.
But the monthly trimmed mean figure increased to 0.5 per cent, leading economists to warn the figures could warrant a further interest rate hike from the RBA.
"If you annualise that number we get 3.6 [to] 3.8 per cent, so that's just way too far from the RBA's target [between 2.5 to 3 per cent]," said AMP economist My Bui.
"And even on the annual numbers, it has been 3.6 per cent three months in a row, contrary to people's hope that it been softening somewhat.
The federal government's temporary reduction to the fuel excise ended at the start of August. (ABC News: Chris Taylor)
Prior to the release of the July inflation data almost 83 per cent of economists polled by Reuters expected the RBA to keep interest rates on hold at its next meeting in late September.
