Inflation worries ahead of budget
(9 May 2011 – Australia) Last week the Reserve Bank of Australia (RBA) said unless it acted swiftly, the country’s inflation would climb to the top of its target and possibly beyond it.
The RBA, who have kept the official cash rate at 4.75 percent since last November, are due to meet again on 7 June and would likely begin with the first of a series of rate rises from there.
An increase of 25 basis points would push the variable mortgage rates charged by Westpac, the Commonwealth Bank and ANZ to above 8 percent. This would add about A$50 to the monthly cost of servicing a A$300,000 loan.
The RBA has made it clear that although financial markets predicted two rate rises, one for 2012 and the other for 2013, forecasts showed that if those were the only increases imposed, the underlying inflation rate would shoot to around 3 percent by December.
The central bank said it would ''look through the volatility in inflation and economic activity as a result of the natural disasters during the summer''.
It expected inflation to accelerate as wages climbed in response to falling unemployment.
Also expected is economic growth to 4.25 percent by the end of the year, easing to 3.75 percent by December 2013.
Driving this is the profitability of non-mining companies.
Other factors driving inflation include higher utilities costs, rents and higher import prices.
Treasurer Wayne Swan warned against jumping to conclusions about future decisions, namely the budget on the basis of what the RBA has said.
''The Reserve Bank takes its decisions independently of the government but the government is playing its role in bringing our budget back to surplus in 2012-13, and building those surpluses over time to make sure we make room for the investment boom,'' he said.
An increase of 25 basis points would push the variable mortgage rates charged by Westpac, the Commonwealth Bank and ANZ to above 8 percent. This would add about A$50 to the monthly cost of servicing a A$300,000 loan.
The RBA has made it clear that although financial markets predicted two rate rises, one for 2012 and the other for 2013, forecasts showed that if those were the only increases imposed, the underlying inflation rate would shoot to around 3 percent by December.
The central bank said it would ''look through the volatility in inflation and economic activity as a result of the natural disasters during the summer''.
It expected inflation to accelerate as wages climbed in response to falling unemployment.
Also expected is economic growth to 4.25 percent by the end of the year, easing to 3.75 percent by December 2013.
Driving this is the profitability of non-mining companies.
Other factors driving inflation include higher utilities costs, rents and higher import prices.
Treasurer Wayne Swan warned against jumping to conclusions about future decisions, namely the budget on the basis of what the RBA has said.
''The Reserve Bank takes its decisions independently of the government but the government is playing its role in bringing our budget back to surplus in 2012-13, and building those surpluses over time to make sure we make room for the investment boom,'' he said.
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