SYDNEY - Australian inflation rose 0.5 per cent in the June quarter and 1.2 per cent year-on-year in data which Wednesday came in just below expectations and was seen as neutral for interest rates.

The Australian Bureau of Statistics said rising medical costs, rents, vegetable and furniture prices were offset by a slump in domestic holidays, television, computer and stereo costs and the price of cakes and biscuits.

Inflation rose 0.5 per cent in the second quarter from the first quarter, just below the 0.6 per cent forecast by analysts, with the annual figure of 1.2 per cent comparing with market expectations of 1.3 per cent.

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Though well below the Reserve Bank of Australia's annualised target range of 2.0-3.0 per cent, the data was widely seen as neutral for interest rates, which are next due to be reviewed on August 7.

Some analysts said the sluggish consumer price data was proof a stimulatory cut was needed, but the broad consensus was for rates to be kept steady at 3.50 per cent for a second consecutive month in August.

The Australian dollar lifted to 102.01 US cents from 101.91 US cents before the figures were released, but rapidly dropped back to around 101.93 US cents, reflecting market expectations that rates would remain on hold.