The Reserve Bank of Australia says the impact from recent disasters will cause a short-term spike in inflation, but will have a limited impact on economic growth this year.
In its latest quarterly Statement on Monetary Policy, the RBA said on Friday that it will largely look past the recent natural disasters and focus on the "medium prospects for economic activity and inflation", stating that the "current setting of monetary policy remained appropriate".
The ABC reports the latest analysis does not include the impact of Cyclone Yasi, but the RBA expects the flooding across the eastern states to cause prices of fruits and vegetables to jump in the coming quarters.
However, it does not expect that these increases will linger.
The recent weather is forecast to wipe around 0.5 percentage off GDP growth over the 2010/2011 financial year, with most of the impact being felt in the December and March quarters.
"The price effects associated with floods are most pronounced in the short term, with a temporary increase in prices due to loss of crops and transport disruptions," a statement by the the RBA said.
Lost coal production, which the RBA estimates to be around 15% of the six-month period's output, is also set to account for some of the slowdown in growth.
But by the June quarter, growth is expected to be at close to pre-flood levels as the reconstruction effort and rising coal prices providing a boost.
"The rebuilding programme is likely to provide a modest boost to dwelling investment and GDP from the second half," the Reserve Bank said.
At the same time, an increase in consumption as households replace damaged goods, is also expected to benefit the economy.
The RBA now expects GDP growth of 4.25% in the 12 months to December, 2011. That is higher than anticipated in its November statement.
While the bank has revised down its near-term forecast for underlying inflation, the ABC reports it says the medium outlook for inflation has been largely unchanged.
It says the impact of a strong Australian dollar and competition among retailers, are helping to keep prices down.
The high exchange rate is expected to mitigate rising prices for some time.
The ABC reports that consumer spending is predicted to rise and labour market is expected to tighten towards the end of the year.
"Which are expected to lead to a pick-up in year-ended inflation later this year," the RBA said in the statement.