Inflation has jumped, driven by rising prices for petrol and fruit and vegetables.
The TD Securities/Melbourne Institute Monthly Inflation Gauge rose 0.7 per cent in December, following a rise of 0.2 per cent in November and 0.1 per cent in October.
In the 12 months to December, prices rose 2.7 per cent, compared with 2.4 per cent in November.
The rise was driven by price hikes for fruit, vegetables, tobacco, petrol and travel over the Christmas break.
Seasonal impacts on inflation in December meant the report needed to be treated with caution, TD Securities head of Asia-Pacific research Annette Beacher said.
"The message from this strong report needs to be treated with a little caution as December is a seasonally strong month for our gauge, while the tobacco price increase rests squarely with the previous government's staggered excise tax increase," Ms Beacher said.
She said recent economic data confirmed that the record-low 2.5 per cent cash rate was stimulating the interest rate sensitive sectors of consumer spending, housing finance and house prices.
The Reserve Bank of Australia's next move on the cash rate would likely be up, rather than down, despite the weak December employment report, she said.
"The recent employment report has enhanced expectations for an additional cash rate cut. But, just like the US payrolls report, it is likely to prove to be a one-off," Ms Beacher said.
"The RBA Board has ample time to assess the health of the labour market and we remain of the view that the next move remains up for the cash rate, although not until the final months of the year."