A lower than expected rise in producer prices is expected to set the tone for the release of key inflation figures later this week.
Figures released today by the Australian Bureau of Statistics showed Australia's producer price index (PPI) at the final stage of production rose 0.3 per cent in the December quarter, for an annual rise of 2.9 per cent.
Economists had expected a 0.4 per cent rise over the quarter.
The data showed that the PPI was also up 0.3 per cent at the intermediate stage and 0.4 per cent at the preliminary stage, the ABS said on Monday.
Commonwealth Bank senior economist John Peters said the data provided a "curtain-raiser" for the release of consumer price index (CPI) on Wednesday, seen as the key measure of inflation.
Mr Peters said there was little correlation between the PPI and CPI but the weaker-than-expected PPI result was reflective of an overall downward trend in inflation.
He said the high value of the Australian dollar was keeping a lid on export prices and forcing inflation down.
"It's a bit of a fearless inflation fighter," he said.
"It's a high currency and that is pushing down import prices and helping cap inflationary pressures."
Mr Peters said he expected Wednesday's CPI figure to be low enough to allow the Reserve Bank of Australia to cut the official interest rate in February as it tries to deal with a worsening global economic outlook.
"We certainly think the door is well and truly open (for a rate cut) and the CPI won't stand in the way."
Alan Oster, group chief economist at National Australia Bank, said the PPI figures were lower than he expected.
"This is consistent with the fact that you've got a higher currency that's lowering imported inflation," Mr Oster said.
He said the data suggested Wednesday's CPI figures may also be lower than market forecasts.
The CPI is used by the RBA in setting monetary policy.
A lower rate of inflation may add to the case for interest rates to come down further, Mr Oster said.
"To the extent that you get a lower CPI ... it probably means that you're definitely going to get one (cut in interest rates) in February and you may get another (cut) later on," he said.
The RBA cut the cash rate by 25 basis points in November last year and again, by the same amount, in December. The central bank cited lower inflation and global uncertainty as reasons for lower rates.
An AAP survey of 12 economists found a median forecast for a 0.2 per cent rise in headline CPI and a 0.6 increase in underlying inflation during the quarter.
That would take the annual headline inflation rate to 3.3, while the underlying rate would be 2.5 - smack bang in the middle of the RBA target range of between two and three per cent.
RBC Capital Markets fixed income and currency strategist Michael Turner said the slightly softer-than-expected data showed a regional trend of lower food prices.
"Food prices are down 22 per cent in the quarter, which is a pretty steep drop," he said.
"That was consistent with the story from New Zealand's CPI (consumer price index) last quarter as well, with a drop in food prices as Queensland's production comes back online."
Rises in the price of industrial machinery and equipment manufacturing, however, were less expected, Mr Turner said.
"We didn't think that would be the case, given the high exchange rate," he said.
While the release of CPI figures on Wednesday would be a much more important factor in guiding future movements by the central bank, the data released today could also support the case for a cash rate cut, Mr Turner said.
"Pipeline pressures seem to have been easing for the past couple of quarters, and there's more evidence of that today," he said.
"At the margin, this might mean that the RBA are more comfortable cutting rates, but I'm not sure this data will feature in discussions much this fortnight."
