An outcome for underlying inflation of 0.8% q/q or more would be a genuine surprise. It would likely cause the RBA to revise up its inflation forecasts (after they cut them in November) and would lift the hurdle for a February rate cut considerably.
Underlying inflation of 0.4% q/q or lower would be a genuinely low outcome.
This would probably see the RBA revise its forecasts downwards, and would suggest that momentum in the non-mining economy is weaker than the (mixed) activity data is suggesting. Whilst we doubt such a low result would trigger a 50bps cut at the RBA's February meeting, it would certainly provide scope for the RBA to deliver back-to-back 25bps rate cuts in February and March, should other domestic and global conditions warrant such easing.
An outcome of between 0.5% and 0.7% q/q would be consistent with the RBA's current forecast, and thus not particularly inconsistent with current market pricing. A result of 0.7% q/q, while 0.2ppts above the market median forecast, would still see the six month annualised underlying inflation rate fall slightly, provided there are no revisions to the historical data. Hence, any initial market reaction that perceived 0.7% as a high result could be quickly reversed.