The S&P/ASX200 rose 18.2 points by midday, up 0.21 per cent, to 9,183.6, as the broader All Ordinaries advanced 16.5 points, or 0.18 per cent, to 9,391.4.
The top-200 had gained more than 56 points in early trade, but retreated sharply after higher-than-expected July inflation figures surprised the market, increasing pressure for further Reserve Bank interest rate hikes.
"Today's inflation figures are a hot mess, and are as much a product of policy decisions than a true measure of price pressures," Deloitte Access Economics partner Stephen Smith said.
"The result was also messy, as it reflects policy-led changes to electricity prices and the partial restoration of the fuel excise."
Crude prices have fallen more than nine per cent since last week, amid varied reports and multiple pathways to a potential reopening of the Strait of Hormuz, the key shipping route that has been disrupted since the US Iran war began in late February.
Lower crude prices weighed on inflation expectations, easing recently red-hot bond yields and providing a boost to global equities.
"Although peace talks remain at an impasse, the vastly reduced military activity and threats between the US and Iran has reduced the geopolitical risk premium in the markets," Capital.com senior market analyst Kyle Rodda said.
The local energy sector fell 2.4 per cent into the red, as Woodside, Santos and coal producers sold off.
The major banks have continued to rebound after tumbling for most of August, helping lift the heavyweight financials segment, although insurers have remained under pressure.
Non-energy miners have continued their record-breaking rally, as strong copper and gold prices helped the sector reset its all-time high for a third straight day.
BHP did the same, and was trading at $68.24 after spiking to a fresh peak of $68.77 earlier in the session.
Gold miners broadly traded higher, despite the precious metal easing to $US4,643 ($A6,473) an ounce, having surged more than 15 per cent in August on the back of an easing greenback and US bond market jitters.
Consumer staples outperformed the other sectors, as Woolworths handed down a bumper $1.1 billion bottom-line full-year profit, up from $983 million a year earlier.
Its shares rallied 3.4 per cent by midday, following Coles' nearly five per cent post-earnings rally on Tuesday.
Elsewhere in earnings, Nine Entertainment shares soared almost nine per cent after growing its statutory net profit after tax by seven per cent to $142.4 million.
The Australian dollar is buying 71.76 US cents, up from 71.45 US cents on Tuesday at 5pm, the Aussie briefly hitting two month highs at the prospect of higher interest rates.
