SYDNEY Australian consumer price inflation accelerated to a six-month high in May, while a key measure of core inflation rose for a fourth straight month, leading markets to narrow the odds on another rate hike as early as in August.

The Australian dollar climbed 0.4% to US$0.6677 and the three-year bond futures fell 10 ticks to 96.01, their lowest level in two weeks.

Swaps moved to imply a 30% chance of a quarter-point hike from the Reserve Bank of Australia in August, up from 12% before the data. A rate cut is seen unlikely until April next year, some 10 months away.

Data from the Australian Bureau of Statistics on Wednesday showed that its monthly consumer price index (CPI) rose at an annual pace of 4.0% in May, up from 3.6% in April and well above market forecasts of 3.8%.

The CPI dipped 0.1% in May, from April.

A closely watched measure of core inflation, the trimmed mean, climbed to an annual 4.4%, also its highest level in six months and up from 4.1%.

But when volatile items and holiday travel were excluded, the CPI dipped to 4.0%, from 4.1%.

With inflation still running above its target band of 2%-3%, the Reserve Bank of Australia (RBA) has warned it is alert to upside risks. It has held interest rates steady at a 12-year high of 4.35% for five straight meetings.

It has yet to rule anything in or out on policy, but the hope is that cost of living relief from the federal and state governments - including billions of dollars in electricity rebates and rent subsidies - will lower headline inflation from the third quarter onwards.

Electricty prices jumped by an annual rate of 6.5%, picking up from April’s 4.2% rise, due to the unwinding of government rebates, while rents surged 7.4%.

The May report, which provided an update on more services in the second quarter of the year, showed that prices for haircuts, restaurant meals and takeaway food were up 5.5%, 4.2% and 4.3% annually.

  - Reuters