Inflation in Australia was recorded at 3.5% for the year ending in July, a decrease from 3.8% in June, according to the Australian Bureau of Statistics.

This July figure slightly exceeded economists' expectations of 3.4%, indicating a trend of slowing inflation despite remaining above the Reserve Bank of Australia's (RBA) target range of 2% to 3%.

The rise in headline inflation was primarily driven by higher fresh food prices, while housing costs saw a slight decline.

Electricity prices fell significantly by 6.4% in July, contributing to the overall decrease in inflation, although gas prices increased by 5.7%.

In light of the persistent inflation, recent minutes from the RBA's August meeting revealed that policymakers are considering further rate increases.

Despite these warnings, some investors are speculating that interest rates may decrease in the upcoming September meeting, with a 20% probability priced in for a cut.

The higher-than-expected inflation figures have intensified concerns regarding potential interest rate hikes by the RBA.

The RBA has dampened expectations for a near-term interest rate cut, affecting hopes for repayment relief this year.

Economist Abhijit Surya predicts inflation will meet the RBA's target by year-end but expects the bank to maintain current interest rates into the first half of next year.

The RBA's focus on quarterly CPI data means that significant monetary policy decisions may not be influenced by the July figures, with the next important release scheduled for October 30.

As the RBA is expected to maintain its current policy stance at the September meeting, this could lead to short-term strength for the Australian dollar.

Overall, the drop in inflation is attributed to a significant fall in electricity prices and a reduction in petrol costs, although essential costs like rents and food continue to rise.