The latest inflation figures may not spark an imminent interest rate cut, but they also would not stand in the way of one.
The Reserve Bank will hold its first board meeting of the year next Tuesday faced with a sluggish economy, high unemployment and a below-target range inflation rate.
While some economists believe a cut in the cash rate is possible, others see the meeting as more of an opportunity to lay the groundwork for a possible reduction later in the year.
The key rate has stood at a record-low 2.5 per cent since August 2013.
The consumer price index rose just 0.2 per cent in the December quarter to be 1.7 per cent higher over the year.
This was the lowest annual rate in almost three years and below the RBA's two to three per cent target range. It partly reflected a 6.8 per cent drop in fuel prices.
Treasurer Joe Hockey said the benign inflation result was good news for families.
With the average price of petrol about 111 cents a litre, a typical family was saving more than $22 a week compared with the middle of last year, he said.
Also, electricity prices were stable after posting a record fall in the September quarter.
"This means families are continuing to enjoy the benefits of the carbon tax being scrapped," Mr Hockey said in a statement.
However, it is questionable how quickly they may enjoy even lower interest rates.
Andrew Aylward, director of investment advisory at consultants Pitcher Partners, said the reaction in financial markets to the inflation numbers suggested the chance of a rate cut next week had dissipated.
The CPI was accompanied with underlying measures of inflation - the Reserve Bank's preferred gauge of price pressures - that were stronger than expected.
Even so, the annual average of these measures was still a benign 2.25 per cent.
RBC Capital Markets head of strategy Su-Lin Ong said despite the lack of a "smoking gun" in the inflation figures, weak commodity prices and cuts by other central banks could prompt the RBA to cut twice this year.
Other data on Wednesday suggested the Australian economy needs a nudge along.
Consumer confidence eased, job advertisements posted on the internet declined for a third straight month and a leading indicator of economic growth pointed to continued weak momentum over the next three to nine months.
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