Trimmed mean inflation, which omits volatile items to measure underlying growth in prices, was 0.6 per cent in the June quarter, the Australian Bureau of Statistics reported on Wednesday, and in line with economists' expectations.
Over the year, underlying inflation rose 2.7 per cent, down from an annualised 2.9 per cent in the March quarter.
The last time the trimmed mean was that low was in December 2021.
The result should give the Reserve Bank of Australia "all the comfort it needs" to cut rates at its next meeting, said KPMG chief economist Brendan Rynne.
"Since the RBA's last board meeting, it seems the arguments for lowering the cash rate have now materialised more than the arguments put forward to maintain the more restrictive monetary policy settings," he added.
"Consumer and business confidence has continued to remain in the doldrums, with households and investors looking for continued rate relief before they open their wallets further."
After the RBA meeting in July, when it shocked the market by holding the cash interest rate steady at 3.85 per cent, Governor Michele Bullock said the board was waiting for June quarter figures to confirm whether or not inflation was still on track to sustainably reach 2.5 per cent.
Although the result was slightly above the central bank's forecast in its last statement on monetary policy in May, it reflects ongoing progress toward the midpoint of the RBA's two to three per cent target band.
A recent uptick in unemployment and weaker-than-expected household spending further supports the case to lower the cash rate to a less restrictive level.
A delighted Treasurer Jim Chalmers welcomed the result.
"Today's inflation numbers are outstanding. There's no two ways about it," he told Sky News.
Ahead of the release, money markets were pricing in a 95 per cent chance that the RBA would lower the cash rate to 3.6 per cent on August 12.
Traders cheered the data, with the Australian share market hitting an intraday high shortly after 11.30pm AEST.
Housing, food and health costs drove inflation higher, while falling petrol prices took some steam out of the index, reflecting lower global oil prices.
The headline consumer price index rose 2.1 per cent over the 12 months to June.
"This is the lowest annual inflation rate since the March 2021 quarter," ABS head of prices statistics Michelle Marquardt said.
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