A further interest rate hike by the end of 2026 is a live threat for Aussie homeowners after improved inflation figures failed to impress economists.

Consumers enjoyed a little respite on cost of living with annual inflation slowing from 3.8 per cent to 3.5 per cent in July, according to the Australian Bureau of Statistics.

But the Reserve Bank’s preferred measure failed to move.

Trimmed mean inflation — which strips out volatility — was 3.6 per cent, unchanged from the previous month.

Both figures were above what markets had expected and Deloitte’s Stephen Smith said the data would put the central bank on “high alert”.

Markets upped their bets on a rate hike at the RBA’s November or December meetings.

Pain for consumers was worst at the bowser, with fuel prices up 7.5 per cent thanks to the end of temporary fuel tax relief by the Federal Government.

VanEck head of capital markets Russel Chesler said the inflation fire was still smouldering.

“With this result, we are of the view that there will have to be at least one more RBA hike this year to temper inflation,” he said.

“The inflation fight is far from won. We remain firmly of the view that inflation is becoming entrenched and has little chance of returning to the 2.5 per cent midpoint of the RBA’s target range by late 2027.”

Deutsche Bank’s Phil Odonaghoe tipped a rate rise as soon as September, while EY chief economist Cherelle Murphy and UBS’s Stephen Wu expected a move later in the year.

“While this result marks some progress in the inflation fight . . . underlying inflation remains high,” Ms Murphy said.

“The (RBA) board has signalled that it will remain cautious until it sees clear and sustained evidence that inflation pressures have been contained, and unfortunately today’s read will not provide that reassurance.

“We believe that the impact of higher fuel prices, an economy operating close to capacity, and ongoing upside risks warrant a further increase in the cash rate this year.”

Minutes from the RBA’s August board meeting released this week had showed some progress in slowing the economy to get inflation under control. Yet the central bank remained concerned prices were still rising too fast.

A rate rise was considered but the RBA opted to hold the cash rate at 4.35 per cent in the hope that three increases so far this year would be enough to fight inflation.

Cost of living pressure was harshest in Hobart and Adelaide, according to the ABS’s latest data.

Clothing, healthcare and education were all much hotter than the RBA’s two to three per cent target band.

Treasurer Jim Chalmers declared the numbers were “promising”, adding that inflation was substantially lower than expected at the time of the Federal Budget in May.

“We already had an inflation challenge in our economy but the war is making it worse,” he said.

“While the initial impact from the conflict on inflation came from fuel, we’re now seeing it broaden into other areas of our economy like dwelling construction costs.

“When we came to office, headline inflation was north of 6 per cent and rapidly rising, it’s now much lower than that.”

Yet the ABS’s numbers show price rises were much worse for goods and services not exposed to overseas markets. So-called non-tradables lifted 4.4 per cent over the year while trade-exposed items rose just 1.7 per cent.

Shadow Treasurer Tim Wilson blamed the Federal Government’s high spending growth.

“Australian families are paying more for everything because the Government can’t stop spending money,” he said.

“Their active inflation agenda is designed to stoke inflation, tax inflation, and spend the inflation in a vicious cycle that keeps Australians poorer”.