Australian consumer prices rose more than expected in July, while core inflation also came in above forecasts, strengthening the case for another interest rate increase from the Reserve Bank of Australia (RBA).

Data from the Australian Bureau of Statistics showed the monthly Consumer Price Index (CPI) rose 1.0% from June, above forecasts for a 0.8% increase and reversing a 0.1% decline in the previous month. Annual headline inflation eased to 3.5% from 3.8% in June, but that was still above the 3.2% to 3.3% range flagged by major banks ahead of the release and above median forecasts of 3.3%.

Much of the year-on-year moderation reflected a large price increase from July last year dropping out of the annual calculation, a mechanical effect that had already been flagged in previews of the data rather than evidence of a genuine slowdown in current price momentum.

The more closely watched trimmed mean measure of core inflation pointed to a more difficult picture for policymakers. Trimmed mean inflation rose 0.5% month on month, well above the 0.3% forecast, leaving the annual trimmed mean rate unchanged at 3.6% from June and above the 3.5% consensus among major bank economists.

The weighted median measure showed a mixed result. It eased to 3.6% year on year from 3.7%, while rising 0.4% month on month compared with 0.3% previously.

Underlying detail suggested the inflationary pulse was broad based rather than confined to fuel. Market goods and services excluding volatile items rose 1.0% in the month, while discretionary spending excluding tobacco jumped 1.5%. That breadth is likely to matter for the RBA because it gives a fuller read on price pressures across the economy, not just in one volatile category.

The scale of the beat, both on headline and on the RBA's preferred trimmed mean measure, materially changes the policy conversation heading into September. A 0.5% monthly increase in the trimmed mean, against forecasts of just 0.3%, is the kind of result that makes it difficult for the RBA to dismiss the move as noise, particularly once the detail shows the pressure was not confined to petrol.

The Australian dollar jumped after the release as markets quickly repriced the odds of another rate increase rather than a hold. That was a clear shift away from the disinflation narrative that had been building around softer headline forecasts into the data release.

For the RBA, the report lands at a point when officials have already raised rates three times this year in an effort to bring core inflation back within its 2% to 3% target band. The latest data adds weight to the view that the tightening cycle may not yet be complete, although officials are still expected to weigh additional data before the September board meeting.