Your 10-second guide to today's Australian inflation report

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Australia’s December quarter inflation report is about to be released.

While it may have lost some of its clout to financial stability concerns under new RBA Governor Philip Lowe, it is still one of the most important data releases in Australia, if not the most important, and has the potential to shift interest rate expectations in an instant.

One only has to look to the events nine months ago to see how far its influence can reach.

Now, like then, markets were paying scant regard to the prospect of a rate cut, let alone two, before the March quarter report hit. Then it arrived, coming in so weak that it prompted the RBA to cut rates not only in May but also August, leaving the cash rate sitting at its current level of 1.5%.

It can and does surprise, meaning markets will be on high alert today.

Here’s the state of play:

  • During the September quarter last year, headline consumer price inflation (CPI) rose by 0.7%, leaving the year-on-year increase at 1.3%.
  • The quarterly increase topped expectations for a rise of 0.5%, and was higher than the 0.4% level reported in the June quarter.
  • Underlying CPI, or core, of more importance to financial markets given its implications for Australian interest rates, increased by 0.35% over the quarter, leaving the year-on-year rate at 1.54%.
  • It was the lowest year-on-year increase on record, courtesy of upward revision to the Q2 figure from the ABS.
  • Today, inflationary pressures are expected to tick up a notch, courtesy of higher petrol, vegetable and tobacco prices.
  • Of the 27 economists polled by Bloomberg, the median forecast looks for a quarterly increase in headline CPI of 0.7%, with the year-on-year rate expected to lift to 1.6%.
  • The core inflation reading — the average of the ABS’ trimmed mean and weighted median figures — is expected to rise 0.5% during the quarter, leaving the increase on a year earlier at 1.5%.
  • This would mark the lowest year-on-year increase in core inflation on record, but would be in line with the Reserve Bank of Australia’s forecasts which have it remaining below 2% until mid-2018.
  • Currently, Australian cash rate futures put the odds of a 25 basis point rate hike from the RBA by the end of 2017 at 36%.
  • To Tapas Strickland, an economist at the National Australia Bank, a high headline CPI print would act to consolidate current market pricing. He also says that it would take a “very weak core print” to substantially unwind market expectations that the next move in interest rates will be higher, rather than lower.

The report is scheduled to arrive at 11.30am AEDT.

Business Insider will have full coverage as soon as the data hits the screens.

I’m David Scutt and you can follow me on Twitter. I’ll be covering the CPI release live.

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