Economists' predictions for the Reserve Bank's first hike in the cash rate appear to be gravitating towards its August board meeting, although financial markets believe it could be sooner.
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Such speculation has been fuelled by a sharp drop in the unemployment rate and an unexpected jump in inflation - two key elements for the central bank to lift the cash rate from a record low 0.1 per cent.
Waiting until August would allow the RBA to see both the March and June quarter inflation reports to ensure underlying inflation has returned sustainably to within its two to three per cent target band.
Underlying inflation - which smooths out wild price swings - hit 2.6 per cent in the December quarter data released this week, its highest level since 2014 and a level the RBA had not expected to reach until the end of 2023.
Commonwealth Securities chief economist Craig James said the preconditions for higher rates are falling into place.
"Still it needs to be remembered that Omicron has only been with us for two months," Mr James said.
"And it also needs to be remembered that wage growth still has some way to go to reach the desired RBA range of 3.0-3.5 per cent."
The prospect of higher interest rates comes as the US Federal Reserve intends to end its bond buying program in March, otherwise know as quantatitive easing or QE, when it will also possibly lift its fed funds rate.
Australian economists expect the RBA will end its QE program - aimed at keeping borrowing costs low - at its first board meeting of the year next Tuesday.
Westpac chief economist Bill Evans is also expecting the first rate hike to be in August, but has cut his economic growth forecast for the March quarter to zero because of the impact from the COVID-19 Omicron variant.
However, Westpac has raised its growth forecast for the December quarter 2021 to 2.6 per cent from 2.2 per cent, partly reflecting the 12 per cent boost to retail sales in October and November as Delta strain lockdowns were removed.
"In contrast, our own high frequency credit and debit card data for the first few weeks of January is pointing to a marked fall in consumer spending over that period which can be attributed to the Omicron shock," Mr Evans said.
"With confidence-related spillovers to business investment and inventories in January we have marked down our forecast growth rate in the March quarter from a robust 2.3 per cent to zero."
Growth for the full year is now forecast at 5.5 per cent rather than 6.4 per cent.
The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future remained in slightly negative territory due to uncertainty surrounding Omicron.
Meanwhile, a key factor in the surge in inflation pressures has been the rise in fuel costs as a result of strong global oil prices.
This was reflected in the Australian Bureau of Statistics' import prices index for the December quarter, which posted its biggest rise in eight years of 5.8 per cent, to be 13.8 per cent up on the year.
It showed imported petroleum products jumped 14.6 per cent in the quarter and a staggering 79 per cent over the year.
The ABS export price index rose by a more modest 3.5 per cent in the December quarter, but was still a hefty 38.3 per cent up on the year.
Surging demand lifted coal export prices by 51.9 per cent in the quarter, while gas exports were 36.1 per cent higher, but a drop in demand for iron ore from China saw metalliferous ores and metal scrap prices down 29.4 per cent.
Australian Associated Press