Australia facing inflation threat | The Daily Star
11:00 PM, October 20, 2009 / LAST MODIFIED: 11:00 PM, October 20, 2009

Australia facing inflation threat

Australia is facing a growing threat from inflation after making a world-beating recovery from the global downturn, the central bank warned on Tuesday.
Inflation had not dropped as much as expected in the slump and could lift again by 2011, the Reserve Bank of Australia (RBA) said in minutes explaining this month's shock rate rise.
"The forecast trough in inflation was not as low as previously expected, and by 2011 inflation could be rising again," the RBA said.
"Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term," it added.
Australia lifted rates by 25 basis points to 3.25 percent effective October 7, becoming the first G20 economy to withdraw monetary stimulus in the wake of the financial crisis.
The resource-rich country, which trades heavily with booming China, posted 0.6 percent growth in the June quarter after becoming the only major Western nation to avoid recession during the downturn.
RBA governor Glenn Stevens has signalled rates were likely to rise from their "emergency" settings but had not previously stressed the danger of overheating.
Core inflation was running at 3.9 percent in the year to June, markedly higher than the RBA's target of 2.0 to 3.0 percent.
"Underlying inflation was still, on the latest data, above the target, and while current forecasts suggested it would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought," the RBA said.
The minutes estimated GDP growth of about 1.0 percent in the first half of the year and said both business and consumer confidence remained strong.
The Australian dollar soared to a fresh 14-month high above 93 US cents after the minutes were released, with some analysts expecting a 50 basis points rate-rise on November 3.

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