The Reserve Bank has been given licence to leave interest rates on hold at its first board meeting for the year, after the delivery of a low inflation result in line with its expectations and signs it will lift.
Australia's inflation rate was just 0.5 per cent in the December quarter, down from 0.7 per cent in the September quarter. But the more closely watched measure of "non-tradables" inflation climbed from 0.5 per cent to 0.8 per cent.
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Why does inflation matter?
Inflation has increased slowly over the past decade, but how does that affect you?
Non-tradables inflation excludes goods and services that can be traded overseas, providing a measure of movements in prices that are domestically generated.
Over the year to December non-tradables inflation was 2.1 per cent, well up on the 1.6 per cent recorded in the year to June.
"It suggests inflation has steadied and may have passed the trough," said HSBC chief economist Paul Bloxham. "We expect underlying inflation to gradually climb from here as the recent rise in commodity prices boosts incomes and flows through to support for domestic wages and inflation.
"We expect the Reserve Bank to be on hold in coming quarters and expect rate hikes in 2018."
The Reserve Bank's measures of underlying inflation were little changed at 0.4 per cent for the quarter and 1.5 per cent over the year.
The headline rate was also 1.5 per cent, marking the ninth consecutive quarter the annual rate has been below the bank's target band of 2 to 3 per cent.
Dragging the index down was a 2.6 per cent fall in the prices of international holiday travel and accommodation in the quarter, a 5.1 per cent fall in the price of clothing accessories and a 3.2 per cent fall in the price of non-alcoholic beverages.
Pushing it up was a tax-induced 7.4 per cent rise in the price of tobacco, a 5.5 per cent increase in the price of domestic travel and accommodation, and a 0.5 per cent increase in the price of a new home.
"It is clear that interest rates will stay low for an extended period," said Commonwealth Securities chief economist Craig James.
"The Reserve Bank doesn't need to cut rates again with inflation trending higher, and there are doubts that rate cuts would actually do much in terms of driving the economy and lifting inflation. And rate hikes are off the agenda."
The board meets for the first time this year on February 7.