A moderation in fuel prices helped ease Australia's annual headline inflation in May, although the rate remains above the central bank's target range amid elevated housing costs.

Australia's consumer price index rose 4% on year in May, down from the 4.2% rate posted in April, data from the Australian Bureau of Statistics showed on Wednesday. On a monthly basis, the CPI fell 0.1% in seasonally adjusted terms.

The annual result is better than the 4.1% forecast from the Commonwealth Bank of Australia and Westpac's expectation of a 4.4% increase.

Housing was the largest contributor to annual inflation in May, with a jump of 6.5% as electricity costs surged after the end of government rebate programs. Transport price growth eased to 3.3% in annual terms from a 6.6% rise in the year through April.

The annual price increase for goods slowed in May, as did tradables inflation, with both declines reflecting a cooling of automotive fuel price growth to 7.7% in May from 18.6% in April, the ABS said.

The latest data follows the Reserve Bank of Australia (RBA) pausing its policy-tightening cycle last week. The bank held its cash rate at 4.35% after three consecutive rate hikes, but left the door open to further increases due to persistently high inflation.

The central bank has a 2% to 3% annual inflation target. As of Tuesday, the RBA Rate Tracker tool pegged the odds of another hike to borrowing costs at 28%.