The benchmark S&P/ASX200 index on Wednesday gained 47.9 points, or 0.57 per cent, to 8,447.0 - its best close since December 5 and only 48 points from its highest close hit in the same week.
The broader All Ordinaries gained 56.2 points, or 0.65 per cent, to 8,700.7.
The bourse had already been rebounding from DeepSeek-inspired jitters on Tuesday but jumped another 26 points in the space of three minutes after the inflation readout.
The Australian Bureau of Statistics reported that consumer prices rose just 0.2 per cent in the December quarter, with the Reserve Bank's preferred inflation metric, annual trimmed mean inflation, coming in at 3.2 per cent, not far from the RBA's target of two to three per cent.
Betashares chief economist David Bassanese predicted that given the inflation results the RBA would reward hard-pressed households and mortgage holders with an interest rate cut at its February 17-18 policy meeting.
"My expectation is the RBA will follow up with two further rate cuts this year, not immediately but likely following confirmation of further declines in inflation," Mr Bassanese said.
AMP deputy chief economist Diana Mousina said financial markets were now giving 92 per cent implied odds of a February rate cut.
NAB, the only big four bank not predicting the RBA would trim rates in February, said it was reviewing its call.
Economists with Vanguard and HSBC on Wednesday stood by their predictions that the Reserve Bank wouldn't trim rates until the second quarter, but TD Securities and Bendigo Bank analysts brought forward their forecasts and now expect rate cut next month.
Every sector of the ASX finished higher on Wednesday except for materials/mining, which dipped marginally.
Utilities was the biggest mover, rising 2.1 per cent as AGL rose 3.2 per cent.
Uranium developers recouped some of Tuesday's DeepSeek-inspired losses, with Bannerman Energy climbing 9.8 per cent, Deep Yellow rebounding 6.9 per cent and Boss Energy rising 5.6 per cent as it declared a start to commercial production at its Honeymoon uranium mine in SA.
The big four banks were mixed, with Westpac advancing 0.5 per cent to $33.55 and ANZ climbing 0.3 per cent to $30.62, while NAB dropped 0.8 per cent to $39.49 and CBA dipped 0.1 per cent to $159.09.
In the heavyweight mining sector, BHP fell 0.9 per cent to $39.13 and Rio Tinto subtracted 1.2 per cent to $116.23, while Fortescue rose 1.1 per cent to $19.09.
In small caps, there were some dramatic losses for several companies.
Playside Studio plunged 47.4 per cent to an all-time low of 20 cents after the game developer said it would miss revenue guidance by $13 million.
Aroa Biosurgery dropped 24.4 per cent to a nearly three-month low of 60.50 cents after the soft tissue regeneration company predicted it would turn a full-year profit of $NZ2 to $NZ4 million.
Close the Loop retreated 28.6 per cent to 12.5 cents announcing that discussions about Adamantem Capital acquiring the electronics refurbisher had ceased.
The Australian dollar was buying 62.44 US cents, from 62.54 US cents at close of business Tuesday.
ON THE ASX:
* The benchmark S&P/ASX200 index on Wednesday gained 47.9 points, or 0.57 per cent, to 8,447.0
* The broader All Ordinaries climbed 56.2 points, or 0.65 per cent, at 8,700.7
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 62.45 US cents, from 62.54 at the close of business Tuesday
* 96.89 Japanese yen, from 97.29 yen
* 59.81 euro cents, from 59.89 euro cents
* 50.14 British pence, from 50.23 pence
* 110.22 NZ cents, from 110.45 NZ cents
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