BREAKING NEWSInflation FALLS within the Reserve Bank target - heres why its way too soon to celebrate

Australias inflation rate has fallen within the Reserve Banks 2 to 3 per cent target for the first time in three years thanks to $300 energy rebates.

The consumer price index - or headline inflation - dropped to 2.7 per cent in August, a sharp fall from 3.5 per cent in July. 

This was the lowest monthly headline inflation rate since August 2021 when Sydney and Melbourne were still in lockdown.

But the dramatic result was largely a result of the federal governments $300 energy rebates that came into effect on July 1, along with generous state government electricity relief programs.

Electricity prices fell by an annual pace of 17.9 per cent, which artificially reduced overall headline inflation in the Australian Bureau of Statistics data.

Queensland is offering $1,000 electricity rebates as Labor battles to win a fourth, consecutive term in October. 

Reserve Bank of Australia Governor Michele Bullock on Tuesday warned a big fall in headline inflation - which includes volatile price items - would not lead to a rate cut in 2024.

Thats going to lower energy prices, fuel prices have also come down in recent months so, it could well be on current forecasts that the headline inflation rate in fact comes in - 12 month ended - below 3 per cent, she told reporters in Sydney.

Australias inflation rate has fallen within the Reserve Banks 2 to 3 per cent target for the first time in three years thanks to $300 energy rebates.

That is important because its reflecting cost-of-living relief so it is reflected in the prices that people are seeing.

But its not really reflective of the underlying inflation pulse which is more, what are we observing happening with services really, which is the crux of the matter.

The official monthly inflation data showed underlying inflation, also known as the trimmed mean, rising by 3.4 per cent over the year. 

This is the Reserve Banks preferred measure of inflation and is given more weight when the board decides whether to cut or hold interest rates, now at a 12-year high of 4.35 per cent. 

Even with petrol and holiday accommodation excluded from the CPI, headline inflation still came in at 3 per cent - or at the top of the Reserve Bank band. 

While headline inflation has fallen, underlying inflation without the volatile items is still well above the RBAs 2 to 3 per cent target. 

But Reserve Bank of Australia Governor Michele Bullock on Tuesday warning a big fall in headline inflation - which includes volatile items - would not lead to a rate cut in 2024