Prices rose 0.1% in August but annual result surprises

Trimmed mean inflation which excludes volatile items was 2.6% over the 12 months to August, down from 2.7% in July.

The biggest contributors to inflation through the month were the prices of meat (including seafood) and dairy products, which both grew 1.1% in August.

Automotive fuel (another of the aforementioned volatile goods) rose 0.8% through the month, while garment and property prices both rose 0.4%.

With unemployment still at 4.2% and household spending recovering better than expected, markets and economists alike expect the RBA will keep the cash rate at 3.60% at the September monetary policy meeting, regardless of today's result.

These monthly figures are unlikely to change this outlook, particularly given the RBA and Governor Michele Bullock tend to put more stock on the more detailed quarterly inflation figures.

The Q3 numbers are scheduled for release the week before the November cash rate decision (on Melbourne Cup day) when economists from all of the big four banks are expecting the next cut to fall.

Is highest inflation in more than a year a worry?

For mortgage holders looking for further relief, annual inflation starting with a 3 again will likely not be positive news.

The RBA targets between 2-3% annual inflation, ideally around 2.5%, so there may be concern that the headline rate is back outside of this range for the first time since July last year.

However, the monthly inflation figures are not as comprehensive as the quarterly read and there are several spending categories not captured in the August result.

It means the price swings for food and fuel may distort the overall number disproportionately, so its important to also remember trimmed mean inflation, which excludes food and fuel prices among other things, was just 2.6% through August.

Trimmed mean inflation (or underlying inflation) may be the number that would raise most alarm if it slipped back above 3%, but for now remains within the target range and has been so since December 2024.

Any chance of a September rate cut?

On Tuesday before the August CPI release, the ASX RBA tracker estimated the market expects there is just a 6% chance the RBA will cut in September.

Economists from all four big banks also believe Ms Bullock and the other board members will want to wait until the Q3 inflation numbers before further loosening monetary policy.

Addressing the House of Representatives Standing Committee on Economics on Monday, Ms Bullock said the data since the August meeting has been "broadly in line with expectations, or if anything slightly stronger."

She reiterated that the board remains focused on keeping inflation within the target range for the long term.

"Low and stable inflation is important because it means that households and businesses can plan, invest and create jobs without having to worry about inflation," she said.