This week's latest inflation figures are likely to fuel speculation of an interest rate rise by the Reserve Bank of Australia this year, coming just days after an unexpected rapid drop in the unemployment rate.
The Australian Bureau of Statistics will release the consumer price index for the December quarter on Tuesday.
Economists forecasts point to a one per cent increase in the quarterly CPI, largely reflecting higher petrol prices and the increased cost of new housing.
This would take the annual rate to 3.1 per cent, up from three per cent as of the September quarter, and just above the RBA's two to three per cent target.
The more interest-rate sensitive underlying measure of inflation - which smooths out sharp price swings - is forecast to rise 0.7 per cent in the December quarter.
This would take the annual rate to 2.4 per cent and up from 2.1 per cent as of the previous quarter, which was the first time it had been within the target since 2015.
Such a result would be stronger than the 2.25 per cent the RBA had been expecting at this stage, with a level of 2.5 per cent not predicted until mid-2023.
Similarly, last week's December labour figures showing a stunning drop in the jobless rate to 4.2 per cent was a faster decline than the central bank had forecast, having not expected 4.25 per cent until the end of this year.
Financial markets are expecting a rise in the RBA's cash rate this year, having been at a record low of 0.1 per cent since November 2020.
RBA governor Philip Lowe has repeatedly said there would not be a rate rise until inflation is sustainably within the target, which would need the unemployment rate to be close to four per cent and wage growth of at least three per cent.
At this stage wage growth remains sluggish at 2.2 per cent.
"Much depends on the RBA's willingness to tolerate inflation at or above target as it waits until wages growth is closer to three per cent- plus," National Australia Bank economist Taylor Nugent said.
The RBA board holds its first meeting of the year on February 1.
Its immediate outlook on the economy will depend on its views on what impact the Omicron variant is having on activity.
Consumer confidence and household spending has already taken a hit as a result of the highly infectious Omicron strain.
The weekly ANZ-Roy Morgan consumer confidence index is due on Tuesday. It tumbled 7.6 per cent last week to its weakest January result since 1992.
NAB will also release its monthly business survey on Tuesday.
Meanwhile, Australian shares look set for a weak start to a trading week shortened by Wednesday's Australia Day holiday.
It comes after Wall Street suffered another day of losses on Friday due to concerns the US Federal Reserve will start lifting interest rates soon to curb rising inflation.
The S&P 500 fell 84.79 points, or 1.9 per cent to 4,397.94, posting its third straight week of loses.
The Dow Jones Industrial Average fell 450.02 points, or 1.3 per cent, to 34,265.37, while the tech-heavy Nasdaq fell 385.10, or 2.7 per cent, to 13,768.92.
Australian share futures fell 49 points, or 0.7 per cent, to 7006.
On Friday, the Australian benchmark S&P/ASX200 index tumbled down 166.6 points, or 2.27 per cent, to 7175.8 points.
The ASX lost almost three per cent last week - its worst performance in 15 months.
