SYDNEY Australia's consumer inflation slowed to a 13-month low in May, driven by a sharp pullback in fuel, while a measure of core inflation also cooled in a sign interest rates might not have to rise again in July.

Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index (CPI) rose 5.6% in the year to May, marking the smallest increase since April last year.

That was down from 6.8% the previous month and well below market forecasts of 6.1%.

The core trimmed mean measure of CPI rose 6.1%, again down from 6.7% in April. A closely watched measure of prices excluding volatiles and holiday travel slowed a tick to 6.4% from 6.5%.

Investors responded by pushing the Australian dollar down 0.8% to $0.6629, and markets have trimmed wagers that the central bank would have to raise rates again next week, pricing in just a 22% probability of a hike, compared with 32% before the data.

"The number is at the very lower end of the range of economists' expectations which ranged from 6.9% to 5.6% and is soft enough by a good margin to see the RBA halt its series of rate hikes in July and possibly beyond," said Tony Sycamore, market analyst at IG.

Wednesday's data showed the most significant drivers were an 8.4% jump in housing and a 7.9% increase in food and non-alcoholic beverages. Offseting the rise was an 8.0% drop in automotive fuel prices.

The Reserve Bank of Australia has raised interest rates by a whopping 400 basis points to 4.1% since May last year, but the upside risks to inflation mean the central bank has adopted a hawkish tone in recent months, warning that more rate rises may be required.

(Reporting by Stella Qiu; Editing by Sam Holmes)