Underlying inflation is expected to have eased slightly in the December quarter but the Reserve Bank of Australia (RBA) will raise interest rates again, economists say.

The December quarter CPI, due on Wednesday, will impact the central bank’s February 2 board meeting – at which most economists are forecasting a fourth consecutive upward movement.

The CPI, which is the key measure of inflation, is expected to have risen by 0.4 per cent in the December quarter for an annual pace of 2.3 per cent, according to an AAP survey of 13 economists.

The CPI rose by 1.0 per cent in the September quarter for an annual reading of 1.3 per cent from a year earlier, the Australian Bureau of Statistics said in October.

The market expects a 25 basis point (quarter of a percentage point) rise in the cash rate, which now sits at 3.75 per cent after three consecutive rate hikes in October, November and December lifted it off a 45-year low of 3.0 per cent.

It is still below the previous cyclical low of 4.25 per cent seen from December 2001 to early May 2002.

Nomura Australia chief economist Steven Roberts expects an annual change in the CPI of two per cent on a 0.4 per cent quarterly change, which would probably be “an acceptable inflation outcome” for the Reserve Bank.

“But having said that, because of the strength we’ve seen through so many economic readings, they probably will lift the cash rate another 25 basis points before they move into a pause for quite a few months,” Mr Roberts told AAP.

“They probably will be lifting the cash rate again later in 2010, but I think it’s pretty unlikely that they’ll follow up the February 25 basis point rate hike with another one in March.”

Due to lags, it is still too early to see the impact of the RBA rate increases last year.

Mr Roberts predicted that rental growth and house prices would flatten out after rising in 2009, while financial services charges would rise and food prices would fall.

“It’s interesting that there’s been quite a hefty fall in the food price component in New Zealand’s CPI and I wouldn’t be at all surprised if we don’t see something similar for Australia,” he said.

New Zealand’s CPI fell by 0.2 per cent in the December quarter, giving an annual inflation rate of two per cent.

Mr Roberts predicted slower growth in Australian utility charges and little movement in health care and education in the fourth quarter.

“The annual change will pick up because there’s a base effect from the negative CPI we had come in the fourth quarter last year,” he said.

Last month the RBA shocked financial markets after deputy governor Ric Battellino said its interest rate setting was now back in a “normal range”.

Citigroup Global Markets director Paul Brennan does not think the central bank will have to lift interest rates in February.

He forecast that the RBA’s measures of underlying inflation would post rises averaging 0.6 per cent in the December quarter, after 0.8 per cent in both the June and September quarters, which would reduce annual underlying inflation to 3.3 per cent from 3.5 per cent.

“If the underlying measure is at 0.6, it represents a fair step down from the 0.8 that we’ve seen in the last two quarters and that’s meant that underlying inflation is likely to fall back within the target range to three per cent by next CPI,” he said.

“The Reserve Bank would welcome that and they would see that as giving them some scope to pause temporarily at least.”

He said the cash rate would remain on hold until March, unless softer than expected employment figures were released.

By the middle of the year, the cash rate would reach 4.25 per cent.

“If inflation comes down over the next couple of quarters, then that gives them a little bit of breathing space.”

Meanwhile, AMP Capital Investors senior economist Bob Cunneen expects price pressures to pick up as the economy recovers.

“This moderation in inflation we have had with the global financial crisis, the pull back in energy prices with petrol … that will all come out of the measures in essence and there’ll be upward pressure on inflation,” he said.

He thinks a rate rise in February is almost certain.

“The RBA need to aggressively tighten policy and what they’re doing with gradual quarter per cent moves since October is just a progressive withdrawal of stimulus.”

A survey by AAP showed the median forecast for the CPI was 0.4 per cent in the December quarter and annual inflation at 2.3 per cent.

For underlying inflation the median forecast was 0.6 per cent for the quarter and 3.3 per cent through the year.