Inflation has fallen to a seven-month low, bolstering hopes of an imminent cut to interest rates.
Data from the Australian Bureau of Statistics on Wednesday showed headline inflation fell from 2.4 per cent to 2.1 per cent in May.
The monthly figures also showed a sharp drop in trimmed mean inflation, which removes volatile price rises, from 2.8 per cent to 2.4 per cent in the month.
It's the lowest level for trimmed mean inflation, which is the preferred measure for the Reserve Bank, since November 2021.
The drop will increase hopes the central bank will deliver another cut to official interest rates when it meets in July.
The fall in inflation came as a surprise to economists, who had tipped the figure to remain stable for May.
The largest contribution to the price rises came from an increase in food and non-alcoholic beverage costs, up 2.9 per cent in the 12 months to May, housing, up two per cent, and alcohol and tobacco, up 5.9 per cent.
The bureau's head of price statistics Michelle Marquardt said the cost of coffee and tea had helped to drive up the prices of non-alcoholic drinks by 5.2 per cent.
"Higher prices for coffee drove the rise with adverse weather conditions impacting major overseas coffee bean-growing areas," she said.
But there was only a small rise in holiday travel costs, which were up 0.6 per cent in the 12 months to May, down from the sharp 5.3 per cent increase recorded for April.
Despite unrest in the Middle East, the price of fuel fell by 10 per cent in the year to May, with petrol prices at their lowest levels since September 2022.
"Across capital cities the average price for unleaded petrol in May was $1.73 per litre," Ms Marquardt said.
"This is 20 cents lower than 12 months ago and significantly below the peak monthly average price of $2.07 per litre in September 2023."
With inflation largely under control, Treasurer Jim Chalmers has turned his attention to lifting productivity growth, bringing the budget back in balance and making the economy more resilient.