Languid inflation has completely wiped out the chance of a interest rate rise this year, economists say.
The consumer price index rose 0.5 per cent in the December quarter, takes annual headline inflation to 1.5 per cent, figures from the Australian Bureau of Statistics on Wednesday show.
The main reason for the rise in headline consumer prices was a 6.7 per cent jump in petrol prices, which rebounded, and a 7.4 per cent leap in tobacco prices, mainly because the federal tobacco tax rose another 12.5 per cent in September.
However underlying inflation, which strips out volatile price movements, was 1.55 per cent over the year, after a quarterly rise of just 0.4 per cent.
Capital Economics chief economist Paul Dales says home prices rose 0.5 per cent in the quarter, but that was no more than normal for the December quarter, while the 5.5 per cent jump in domestic travel costs was actually lower than the usual 6.4 per cent.
"The truth is it's hard to find much evidence of a widespread and sustained pick-up in inflation pressure," he said in a statement.
Both the headline and underlying measures of inflation have been below the Reserve Bank's favoured target band since September 2014.
Commonwealth Bank senior economist Gareth Aird pointed out that recently firmer commodity prices, a very gradual tightening in the labour market and a lift in both domestic and global inflation expectations suggested that underlying inflation had bottomed out.
"It does, however, look like the slowdown in inflation has come to an end, which supports market pricing that one per cent is the low point for the cash rate," he said in a note.
Mr Aird doesn't expect core inflation to rise back within the target band until 2018, but he said the hurdle for another rate cut is higher than it was last year because RBA governor Philip Lowe seems to be more concerned about financial stability than inflation.
"With the (US) Fed tightening further in 2017, public infrastructure spending lifting and continued strength in the housing market, we see the RBA content to leave rates on hold despite inflation undershooting the target," he said.
"The risk, however, sits with easing over the next six months. And in our view, talk of a rate rise is premature."
