Inflation looks set to rise following an improvement in Australia's terms of trade, lifting wages and keeping interest rate cuts off the table, but some economists warn the relief from persistently low inflation may be short-lived.
Australia's terms of trade leapt 12.2 per cent in the December quarter, the biggest gain in six and a half years and the third-biggest quarterly increase since records began.
Export prices rose 12.4 per cent in the quarter, while import prices were up just 0.2 per cent, according to the Australian Bureau of Statistics trade price indices.
Overall export prices were boosted by coal, iron ore, gas, metals, sugars and fuel, while there was broad weakness in import prices with only fuel prices rising modestly.
CommSec chief economist Craig James said rising commodity prices will lift national income and likely boost inflation and wages, while falling consumer goods prices would benefit households.
He said global inflation was also likely to rise, which meant interest rate cuts were now well and truly off the Reserve Bank of Australia's agenda.
"So businesses need to be alert for higher inflation," Mr James said.
"Inflation has bottomed. Rate cuts are off the agenda."
However JP Morgan economist Tom Kennedy warned the strong lift in Australia's terms of trade was likely to be temporary, with key export prices expected to fall in coming quarters.
He said hard coking coal spot prices were already more than 40 per cent below the September quarter peak and iron ore spot prices are expected to decline in coming months as more supply comes on line.
Mr Kennedy said on the other side of the ledger, Brent crude prices so far in January were tracking above the fourth quarter average, and will likely buoy import prices in the first quarter.
"Given these dynamics, our base case is for Australia's terms of trade to move lower from early 2017," he said.
