Aussie inflation on track after December rate cut

Fuel prices were a key driver of inflation, which is in line with the Reserve Bank of Australia's targets. Photo / Supplied

Consumer prices are rising in line with the Reserve Bank of Australia's target for inflation, a report says.

The TD Securities-Melbourne Institute inflation gauge rose 0.4 per cent in December, after prices fell 0.1 per cent in November, the survey published yesterday showed.

In the year to December, the gauge rose 2.4 per cent, in line with the previous month's reading and within the RBA's target band for inflation of between 2 and 3 per cent on average over time.

The RBA cut the cash rate by 25 basis points to 3 per cent in December, a level not seen since the global financial crisis.

The central bank traditionally does not meet in January and is due to hand down its next monthly interest rate decision on February 5.

The decision will come after the Australian Bureau of Statistics publishes the December quarter consumer price index report on January 23.

TD Securities head of Asia-Pacific research Annette Beacher said the RBA's February meeting was likely to be a "lively one" as the outlook and risks for 2013 were discussed.

"On balance, we are of the view that the cash rate should remain at the already record low of 3 per cent."

Previous interest rate cuts, as well as a "less-restrictive fiscal stance" had already provided a significant boost for the Australian economy, she said.

TD Securities was forecasting one more 25-basis-point interest rate cut from the RBA in the coming months triggered by "disappointing domestic demand growth or a re-emergence of fresh downside risks from offshore", Beacher said.

At January 10 this year, interbank cash rate futures prices put the chance of a 25-basis-point rate cut in February at 34 per cent.

The inflation gauge showed that price increases in December were due to fuel, which rose 1.5 per cent, an 0.6 per cent rise in rents, as well as more expensive holiday travel and accommodation.

By contrast, the cost of clothing, footwear, alcohol, tobacco, meat and seafood fell in December.

- AAP