Economists say the fastest pace of headline inflation growth in seven years could dash hopes for an interest rate cut by Christmas.

Figures released today showed the consumer price index (CPI) rose by 1.5 per cent in the June quarter, for an annual rate of 4.5 per cent.

VIDEO: Rate relief hopes dashed

The pace of inflation growth was higher than financial markets had expected and was well outside the RBA's inflation target of between two and three per cent.

It's also the fastest pace of annual headline inflation since the June quarter of 2001 when the introduction of the goods and services tax affected the data.

Rates likely to remain on hold

ANZ economist Riki Polygenis says the RBA is more likely to keep interest rates on hold at 7.25 per cent as it waits for a slowdown in domestic demand to bring down price pressures.

ICAP senior economist Matthew Johnson agrees the RBA isn't going to be too worried about the latest CPI result.

The core measures, although taking into account the high fuel price, are probably a bit above what the RBA was anticipating,'' Mr Johnson said.

''So the RBA will have to revise up their inflation track. It defers a rate cut a little longer, until next year. But I don't think the RBA will be raising rates any time in the future.''

Swan warns banks on rate moves outside official hikes

Federal Treasurer Wayne Swan said Australia faces a "long-term challenge" to get inflation down, and warned the banks to be careful of raising interest rates outside of official moves.

Mr Swan said inflation pressures in the economy were broadly based and there was no point in trying to "sugar coat" the problem.

But, he said, he believes government policy to maintain strong budget surpluses and to drive investment to increase Australia's capacity will put downward pressure on prices.

Whether official interest rates, as managed by the Reserve Bank of Australia (RBA), will rise again this year is a matter for the central bank, he added.

But the commercial banks "need to take great care" when deciding to lift rates outside central bank moves.

"There's a global credit crunch which is putting upward pressure on rates," Mr Swan told journalists in Sydney.

"They (the banks) have a choice between their shareholders on the one hand and their customers on the other.

"They need to take great care in taking decisions on passing on rate rises outside the official cycle."

Mr Swan said there needed to be an "eagle on competition" in the lending market.

Petrol prices are hurting: Swan

Mr Swan said the June quarter CPI confirmed that high global oil prices were hurting.

He noted that the RBA's preferred underlying measure of inflation was at its highest in 16 years.

"We inherited inflation at a 16-year high," Mr Swan said.

"Now that didn't happen overnight, it's been building for a long time and it will take time to deal with.

"Putting in place the budget is just the beginning of the long-term battle to combat inflationary pressures in the Australian economy.

"It's certainly going to take a significant amount of time.

"We have probably the most difficult global conditions in 25 years, no doubt about that, in terms of the global liquidity crunch. That is putting upward pressure on rates," he said.

Mr Swan said sky-high global oil prices and higher rents had pushed up the rate of inflation in the June quarter, and he wasn't surprised by the figures.

"No, I'm not surprised because underlying inflation is at a 16-year high, and it's been there for some time," he said.

"We inherited very significant inflation pressures.

"We put our hand up on day one to say we would deal with them.

"And we have been dealing with them through budgetary policy.