SYDNEY, Aug 28 Reuters Australian inflation slowed to a fourmonth low in July as government rebates on electricity bills kicked in, but progress on tempering price gains elsewhere disappointed and led markets to pare back the chance of a nearterm cut in interest rates.

The consumer price index CPI rose at an annual pace of 3.5 in July, down from 3.8 in June, Australian Bureau of Statistics data showed on Wednesday.

The figure was slightly above forecasts of 3.4, leading markets to slightly lengthen the odds of a first easing from the Reserve Bank of Australia in November to 48.4, from 58 before.

The Australian dollar rose 0.1 to 0.6803, about the highest this year, and the threeyear bond yield was up 4 ticks to 3.559.

On a monthly basis, the CPI was flat in July from June as electricity prices fell 6.4, and petrol dropped 2.6, but rents, food and gas prices rose.

July39;s inflation print is full of smoke and mirrors. At face value, the fight against inflation looks to have taken a massive step forward…but some of that improvement came from rebates that artificially lowered the cost of electricity, said Harry Murphy Cruise, an economist at Moody39;s Analytics.

While that makes the headline inflation figure look a whole lot better, prices are ultimately unchanged.

Indeed, the slowdown in headline inflation was due to electricity subsidies from the federal and state governments, which began in the state of Queensland and Western Australia last month, with other…