A key measure of inflation has fallen to its lowest level in almost three years, with positive signs for the Reserve Bank and consumers.

The Australian Bureau of Statistics monthly measure of inflation for August fell to an annual rate of 2.7 per cent.

It fell in part to a huge drop in electricity prices which have been pushed down by government subsidies. The annual inflation rate for electricity, which was 7.5 per cent in June, fell to minus 17.9 per cent in August.

But it was not just electricity prices bringing down inflation.

Petrol prices through August also fell, taking the annual rate down to minus 7.6 per cent. Since then, petrol prices have continued to fall.

Annual inflation for a host of other sectors also declined through the month, leading to falls in the annual rate. They include food and non-alcoholic beverages (from 3.8 per cent to 3.4 per cent), bread products (from 4.4 per cent to 2.5), clothing (from 1.9 per cent to 1.7 per cent) and communications (from 1.9 per cent to minus 0.2 per cent).

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In positive news for the Reserve Bank, the annual rate of underlying inflation eased from 3.8 per cent to 3.4 per cent. In May, it was running at 4.4 per cent.

Reserve Bank governor Michele Bullock on Tuesday said the bank would focus on the underlying measure of inflation, noting that the headline rate of inflation was being affected by government subsidies.

The bureau’s head of price statistics, Michelle Marquardt, said inflation on both headline and underlying terms had fallen.

“Both measures of annual underlying inflation in August are the lowest they have been for 2.5 years,” Marquardt said.