Lower fuel prices and easing home building costs have helped the Reserve Bank of Australia’s preferred measure of underlying inflation moderate to a 3½-year low of 2.7 per cent, setting up a near certain interest rate cut in less than two weeks and potentially more relief before Christmas.

The headline annual consumer price index (CPI) fell to an even better four-year low of 2.1 per cent in the June quarter, assisted by temporary government subsidies for energy bills for households and small businesses.