Australia's inflation indicators cooled in August as government assistance measures to alleviate the impact of energy costs began to take effect, suppressing overall price levels.

Data released by the Australian Bureau of Statistics on Wednesday showed that the CPI rose by 2.7% year-on-year, in line with the median forecast of economists, marking the first time since August 2021 that it fell below the Reserve Bank of Australia's (RBA) target ceiling of 3%.

The adjusted core indicator average, which smooths out more volatile items and is a focus for the RBA, fell from 3.8% a month earlier to 3.4%.

The yield on policy-sensitive three-year Australian government bonds gave up intraday gains, and the euro also retreated from a 19-month high touched earlier in the session.

Michelle Marquardt, head of price statistics at the Australian Bureau of Statistics, said: "Both annual underlying inflation indicators for August are at their lowest levels in two and a half years."

Tony Sycamore, an analyst at IG Markets, said: "Given the core inflation decline seen today, which was mirrored in the crucial third-quarter inflation data, this suggests that the RBA will shift towards a dovish stance at its November meeting."

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The quarterly CPI data will be released on October 30.

The day before the data is released, the RBA's interest rate-setting board kept the benchmark interest rate at a 12-year high of 4.35%, stating that it remains vigilant about the risk of inflation rising.

RBA Governor Philip Lowe reiterated that she expects no rate cuts this year and noted that monthly inflation indicators are "quite volatile" and do not cover all items, potentially influenced by one-off or temporary factors.

The RBA aims to bring consumer prices back within the target range of 2%-3% and ensure they remain at this level.

Lowe told reporters after the September policy meeting: "If there's a '2' in front of the data on Wednesday, that doesn't mean we've got inflation under control.

It doesn't mean inflation will continue to return to a reasonable range; it just means it's back there now."

Bloomberg economist James McIntyre said: "The average suggests that inflation seems to be falling back faster than the RBA anticipated.

If this happens again in September and the third-quarter CPI data, a faster easing of core inflationary pressures could push for a rate cut at the RBA's meeting on November 4-5."

The RBA's hawkish rhetoric highlights its efforts to control prices—the central bank has pushed back the timeline for core price growth to return to the midpoint of the target.

Australia's stance contrasts sharply with countries like New Zealand, the United States, and the United Kingdom, which have already started easing cycles.

The RBA has adopted a different strategy to contain post-pandemic inflation because it wants to maintain employment growth.

Australia's interest rate hikes have been smaller than those of other countries, resulting in a benchmark interest rate about one percentage point lower than the Federal Reserve's.

The RBA has kept interest rates unchanged this year while emphasizing that overall demand still exceeds the economy's supply capacity.

The central bank's forecasts show that core CPI will not return to the target range until the end of 2025.

Australian Treasurer Jim Chalmers welcomed Wednesday's results, saying that although monthly data may "jump" a bit, the moderation of the data is "very encouraging."

The report also showed that among various price categories, real estate rose by 2.6%, food and non-alcoholic beverages by 3.4%, and alcohol and tobacco by 6.6%.

Energy subsidies from the Australian Commonwealth and states led to a record drop in electricity prices by 17.9%, and fuel prices fell by 7.6%.

Over the year to August, rents rose by 6.8%, reflecting tight markets in most major cities.

The Australian Bureau of Statistics said that new home prices rose by 5.1%, having remained around 5% over the past year, as builders passed on increased labor and material costs to builders.

New home prices include newly built homes and significant renovations.