Fourth interest rate hike looming

THE outcome of inflation data could be a formality for the Reserve Bank with experts tipping a fourth consecutive interest rate hike soon.

THE outcome of inflation data could be a mere formality for the Reserve Bank with economists tipping a fourth consecutive interest rate hike is on the way.

Despite the prospect of another share market thumping today the pile of good economic news - including robust jobs numbers, rising house prices and solid retail sales - suggests Australia's economy is on a sure footing, the Herald Sun reports.

And with just a week to go before the RBA's February meeting financial market betting on another 25 basis point rate increase is at 67 per cent.

Economists are warning borrowers to brace for more pain, even if official figures, released on Wednesday, reveal underlying inflation eased in the December quarter.

"As always, it is the outlook for inflation that will take the RBA's foot off the accelerator this year," says TD Securities senior strategist Annette Beacher.

"Critically, the lack of spare capacity and rising terms of trade are likely to fuel inflation going forward, and we expect underlying inflation to rise again to (an annual) 2.8 per cent by year-end, well above the RBA's November year-end forecast of 2.25 per cent."

A survey of 13 economists, conducted by AAP, shows the consumer price index probably rose 0.4 per cent in the December quarter, for an annual pace of 2.3 per cent.

The median forecast for underlying inflation was for a 0.6 per cent quarterly rise, translating to 3.3 per cent through the year.

Although still overwhelmingly tipping a February rate hike, financial market betting on another rate rise eased slightly late last week in the wake of share market jitters here and in the US. Market watchers predict Australian shares could be in for a tough ride today after Wall Street delivered a third straight day of big losses on Friday because of concerns about US banks and China's recovery.

Trading could also be thin ahead of tomorrow's Australia Day public holiday.

Concerns state-based royalty taxes on mining projects could be replaced with a uniform resource rent tax set at 40 per cent hammered resources stocks last week.

Australia's Resources Minister Martin Ferguson said at the weekend that the Henry tax review had not given the government a "firm proposal" on changes but metals producers wanted fast action on any alterations.

"The message from the mining industry and the financial sector to me has been we need certainty,"' he told Bloomberg.

Investors will be given more direction on how Australian companies are faring with the first big wave of profit reports coming this week.

Coal & Allied and GUD Holdings will unveil earnings on Wednesday, while retail giant Woolworths will release its second-quarter sales.

Recent upgrades from Computershare, Flight Centre and Commonwealth Bank and strong guidance from Harvey Norman bode well for earnings season.

CommSec chief economist Craig James said financial companies were likely to book strong December half results while retailers should deliver firm sales growth but more modest gains in earnings.

However construction, engineering and business-dependent firms were likely to book poor results.

"Earnings season has always been about future guidance and that is even more so now," said Mr James.