Australia’s headline inflation sank to its lowest level in more than three years in the September quarter, as lower energy prices and elevated interest rates eased price pressures in the economy.

The annual consumer price index for the July-September period was 2.8%, or the lowest since the March quarter of 2021, the Australian Bureau of Statistics reported on Wednesday.

That outcome was compared with the 2.9% pace expected by economists and the 3.8% headline result for the June quarter.

The underlying inflation rate – the trimmed mean that the Reserve Bank watches closely – came in at 3.5%. The result was in line with economists’ forecasts of 3.5% and a revised 4% pace in the June quarter.

Electricity prices fell by 17.3% in the latest quarter, the largest quarterly fall for the index on record, the ABS said. Power bill relief from the commonwealth and the states of Queensland, Western Australia and Tasmania helped. Automotive fuel also fell 6.7%.

Services inflation, though, picked up a bit, rising at an annual pace of 4.6% in the September quarter from 4.5% in the June quarter. Rents were up 6.7%, the slowest pace since the June quarter of 2023, while insurance costs were up 14% from a year ago.

The federal treasurer, Jim Chalmers, said: “When we came to office inflation was much higher and rising, now it is lower and falling.”

“Today’s numbers show we are on track and on target for a soft landing in our economy,” the treasurer said on Wednesday.

“Our policies, including energy rebates, are making a meaningful difference and helping in the fight against inflation but they don’t explain all the moderation in [the September quarter] figures.”

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Inflation has been on a downward trajectory since the end of 2022 under the weight of 13 interest rate hikes by the Reserve Bank. The RBA governor, Michele Bullock, said last month the central bank would likely want more proof inflation was “sustainably” within its 2-3% target range before it cut the officials interest rate.

Wednesday’s data – along with other signs the cost-of-living crisis is abating – increases the odds that the RBA will start to consider the case for a lower cash rate at either its 4-5 November board meeting – just prior to the US presidential elections – or its final one for 2024 five weeks later.

Markets largely took the inflation figures in their stride, with the Australian dollar and the stock indices little changed in the immediate aftermath.

Prior to the CPI figures, investors were betting there was only a 10% chance of a 25 basis-point RBA rate cut to 4.1% next week and about a one-in-four chance in December. They estimated a reduction of that size was only a certainty in May next year, according to the ASX’s rate tracker.

On a quarterly basis, the headline CPI was up 0.2%, or a bit lower than economists had predicted. The increase was the least since the inflation drop in the June quarter of 2020 when Covid lockdowns began stalling the economy.

For September alone, the headline annual inflation rate was 2.1%, also lower than the 2.3% economists had tipped. The annual trimmed mean measure eased to 3.2%, down from August’s 3.4% pace, placing it just outside the RBA’s target band.

The ACTU secretary, Sally McManus, said as major economies started cutting interest rates, “Australians have a right to expect that our rates can and should start to be lowered before the year is out”.

“Even an initial quarter of a percentage cut in interest rates, on the average mortgage, puts an extra $100 a month back into the household budgets of families who need that money,” McManus said.

“Working people have done all of the heavy lifting to fight inflation, while in many cases big business has made things tougher for consumers by price gouging.”

Market analysts, however, doubt the RBA will move at its remaining two board meetings in 2024.

David Bassanese, the chief economist at Betashares, said a February rate cut was possible.

“Excluding government rebates, electricity prices would have increased 0.7% in the quarter,” Bassanese said, adding the support shaved 0.4 percentage points from the headline CPI prices.

“Unlike in some countries such as Canada, the UK and New Zealand, however, today’s result did not deliver a material downside surprise in inflation that might have justified a speedier pace of interest rate cuts.”

Cameron McCormack, a portfolio manager with VanEck, said a “white Christmas appears more likely than a rate cut in 2024”.

“The Australian economy continues to demonstrate resilience, characterised by a robust labour market, low unemployment and persistent wage inflation,” he said.

Retail sales growth has accelerated with the full impact of the government’s July tax cuts still to be felt.

Bendigo Bank’s chief economist, David Robertson, said borrowers may have to wait until well into 2025 before the RBA starts cutting its cash rate from the current 4.35%.

“While a cut in February or May has remained a close call for some time, we continue to suggest an RBA rate cut in May is most likely for Aussie households,” Robertson said on Wednesday.