Economists said that soft import prices brought about a weaker than expected producer price index (PPI) in the December quarter, which according to the latest figures furnished by the Australian Bureau of Statics (ABS) on Monday merely jumped by 0.1 percent, en route to an annual rate of 2.7 percent.

The numbers surprisingly detracted from economists' last quarter projections of at least 0.5 percent rise in prices of factory and farm gate goods and services, going into an annual rate of 3.2 percent.

Ben Dinte of the Macquarie Group told AAP that the new PPI numbers were obviously weaker than expected as he pointed to plunging import prices as the major culprit, which he explained "fell across the board and that's really related to the strength of the Aussie dollar in the final quarter of last year pulling back the price of imported goods."

Dinte also noted that the weaker PPI could lead to better inflation figures as it is a prime determinant of the consumer price index (CPI), which the ABS is scheduled to release too on Tuesday.

The market is expecting that CPI will have risen by 0.7 percent in the December quarter for an annual rate of 3.0 percent while the median forecast for underlying inflation has been pegged at 0.7 percent in the same quarter for a yearly rate of 2.65 percent.

Those numbers resulted to firmer food prices in the last three months of 2010, according to Macquarie Group, which Dinte said points to more acceptable inflation levels though he doubts if the weaker PPI would influence considerable movements in the cash rate for February.

He said that more cause of concerns for inflation is the impact of the flood disaster, which should manifest more prominently in the March quarter and JP Morgan economist Helen Kevans agreed that while the December PPI may mitigate the inflationary effects, its impact could be minimal at best.

Kevans said that the recent flooding would at least have more influence, which should nudge a bit food prices in NSW, Queensland and Victoria, the states hardest hit by the disaster.

Damages caused by the flooding would largely prod the Reserve Bank of Australia to lift its policy rates after the first three months of 2011 and Kevans is projecting that a 25 basis points hike may be implemented in May as inflation levels are set to increase from January to March.

Also, St George chief economist Besa Deda told AAP that market attentions is now focused on the first quarter economic indicators and a rise in inflation numbers is almost a certainty, though she pointed out that apart from the flood disaster washing away some economic gains, the solid Aussie dollar may have suppressed the country's import prices during the December quarter.