A pre-election interest rate cut is looking less certain after key measures of inflation showed price pressures were not as tame as expected.
While remaining within the Reserve Bank of Australia's (RBA) inflation target, a modest acceleration in underlying inflation was enough for financial markets to wind back expectations for an August rate cut.
"While the RBA will not be overly concerned with today's figures ... they do reduce the probability of an August rate cut at the margin," ANZ senior economist Riki Polygenis said in a note to clients.
The consumer price index (CPI) for the June quarter released on Wednesday rose 0.4 per cent in the June quarter, for an annual rate of 2.4 per cent.
The average of the underlying measures of inflation - the RBA's preferred measure of price pressures because these smooth out volatile price swings - was a faster than forecast 0.6 per cent and 2.4 per cent over the year.
Even so, Treasurer Chris Bowen said the report shows price pressures remain well contained.
"The Labor government is committed to easing cost of living pressures for Australian families as the economy transitions away from the mining investment boom," Mr Bowen said in a statement.
Shadow treasurer Joe Hockey described the figures as "good" but said people still struggle with cost of living challenges while the carbon tax exists.
Australian Chamber of Commerce and Industry chief economist Greg Evans believes there is still scope to cut the cash rate, saying the case for a move has been building steadily.
"Since the Reserve Bank lowered the cash rate to 2.75 per cent in May there are signs the economy has continued to slow," Mr Evans said in a statement.
Other data on Wednesday showed demand for workers through internet advertising was 23.8 per cent down on the year, while manufacturing in China, Australia's number one trading partner, tumbled to an 11-month low.
Australian National Retailers Association chief executive Margy Osmond said the inflation data shows retailers have kept the pressure off family budgets.
"Retailers will be looking for all the help they can get from the RBA to continue to prove to consumers the sector is playing a positive role in keeping costs down," Mrs Osmond said in a statement.
The government's budget forecasts for inflation, growth and unemployment could be subject to change when it releases its promised pre-election economic statement.
Prime Minister Kevin Rudd said his expenditure review panel is continuing to look "at the overall shape" of the budget.
But Opposition Leader Tony Abbott said the government was on a "spendathon" and instead of just making budget cuts it should reduce taxes.
However, Mr Abbott's former boss John Hewson questioned the aim of both major political parties to return the budget to surplus.
"This blinded objective of achieving a budget surplus at all cost, as fast as possible, is nonsensical (from) both sides of politics, particularly in circumstances when the economy is flattening out," the former Liberal leader told the National Press Club.
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