The latest consumer inflation figures are out on Wednesday and the Reserve Bank will be looking closely at the numbers to decide its next move on interest rates.

Its forecasting annual inflation will reach 8 per cent over the year to December, but CBA economist Gareth Aird thinks it may not be that high.

In a note out this morning, Mr Aird predicts the cost of living will have increased by 1.7 per cent over the December quarter and by 7.7 per cent over the year. 

CBA expects the Reserve Bank to raise the cash rate by 0.25 per cent next month, although some other economists, such as AMP’s Diana Mousina, is tipping interest rates could stay on hold.

That’s after there was a surprise loss of jobs in December, which could indicate that higher rates are starting to hurt the economy.

Mr Aird thinks inflation will have remained strong over the  last few months of last year.

“We expect inflation pressures to abate relatively swiftly in 2023,” he wrote. 

“But the annual rate still has further to rise and we expect the peak in Q4 22 (i.e. the upcoming quarterly inflation report due to print on 25 January).

“We expect this data to show that inflation pressures remained very strong over the December quarter, albeit we think the headline data will not be as strong as the RBA’s implied profile.”

” Notwithstanding, we anticipate that monetary policy will be tightened again at the February Board meeting.”

” We consider our forecasts for both headline and underlying inflation to be consistent with the RBA increasing the cash rate by 25 basis points  at the February board meeting.”

“But it is not a done deal, particularly as the RBA has indicated they are willing to pause in the tightening cycle.”