Australia’s inflation rate has eased more than expected, reducing expectations of an interest rate hike in August.

The Consumer Price Index rose 3.8 per cent in the 12 months to June, down from 4 per cent in May and below economists’ forecast of 4.1 per cent.

Underlying inflation, measured by the trimmed mean, remained at 3.6 per cent, still above the Reserve Bank’s target range.

The latest figures have sharply reduced market expectations of an interest rate increase at the RBA’s August meeting.

Westpac chief economist Luci Ellis said the bank no longer expects the RBA to raise rates again this year.

However, economists warn that persistent domestic price pressures, particularly in the services sector, could keep the Reserve Bank cautious on future rate decisions.