fruit and vegetables.

Increases in fruit and vegetable prices helped inflation rise by a surprise 0.8 per cent in the December quarter.

Consumer prices jumped by a surprise 0.8 per cent last quarter, reducing the chance of another cut in the official cash rate by the Reserve Bank of Australia in the near term.

The Australian dollar jumped by half a cent after the report was released, rising to US88.5c - its highest level in a week.

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Source: ABS

"The likelihood of further rate cuts is unlikely given the surprisingly high inflation data," Moody's Analytics associate economist Katrina Ell said.

"The central bank will be hoping the exchange rate falls further to give the economy the boost it needs."

Underlying inflation, which is more closely watched by the Reserve Bank and is a combination of the mean and weighted median measures, rose by 0.9 per cent in the fourth-quarter and by 2.6 per cent year-on-year, the Bureau of Statistics data released today showed.

The main drivers for the December quarter were a rise in the price of fruits and vegetables by 8.1. per cent and domestic holiday travel and accommodation by 6.9 per cent.

A rise in new housing purchases by owner occupiers, international holiday prices and tobacco costs also boosted inflation.

In contrast, fuel prices eased by 1.1 per cent.

Weaker currency, one-off factors hits inflation

UBS interest rate strategist Matthew Johnson said some of the price rises, including the jump in fruit and vegetable costs, were a result of one-off factors such as weather.

"It seems most likely that high inflation is mostly the result of the weaker currency and weather," Mr Johnson said. The Australian dollar lost about 15 per cent of its value last year. A weaker exchange rate was expected to raise the cost of imports but reduce pressure on exporters.

"Inflation's picked up and it makes it hard to see rate cuts," Mr Johnson added. "But I don't think the RBA is going to hike rates as it's hard to square high core inflation with the soft labour market and weak wages growth."

Financial markets are pricing in per cent chance of a 25 basis points rate cut in February.

Lower dollar hits tradeable goods

The decline in the Australian dollar was expected to be felt in the tradeables segment of the inflation measure. Tradeables, which are goods that have prices determined on the world markets such as clothing and electronics, have been experiencing low inflation levels amid a strong domestic currency.

"I think we're starting to see a little bit of a change come through," St George Bank chief economist Besa Deda said.

"Obviously, the Australian dollar, particularly in trade-weighted terms, has come off, and we are seeing that starting to filter through to the tradeables numbers. So the period of downward pressure on tradeables inflation I think is over.

"We're seeing in this quarter's numbers that the annual rate for tradeables inflation has moved from a contraction to growth. So it was falling for seven consecutive quarters and now it's actually turned growth of 1 per cent."

Inflation closer to top end of RBA's target

The 0.8 per cent lift for the final quarter of 2013 – which came after a 1.2 per cent rise in the third-quarter – took the annual rate to 2.7 per cent and placed it closer to top end of the RBA's target 2-to-3 per cent range.

Economists had forecast a 0.4 per cent quarterly rise and an annual growth of 2.4 per cent.

The latest figures came a day after New Zealand recorded a surprise rise in inflation. The 0.1 per cent lift in consumer prices for the fourth quarter, taking the yearly rate to 1.6 per cent, increased expectations the Reserve Bank of New Zealand would raise its cash rate as soon as next week.

New Zealand's cash rate, like Australia's, is at 2.5 per cent. The RBNZ is already being touted as the first big central bank to raise interest rates this year.