|
November 13, 2007
The Reserve Bank's November Statement on Monetary Policy says that:
The continued strength in demand and activity at this stage of a long expansion has brought the Australian economy to a position where productive capacity is stretched and labour market conditions are tight. While growth in labour costs has been contained at this stage, and high levels of investment are adding to productive capacity in some sectors, aggregate demand has been growing at a pace that has put upward pressure on underlying inflation...The Bank’s forecasts have for some time incorporated the view that there was likely to be upward pressure on inflation as a result of strong demand and tight capacity. The September quarter CPI provided some additional confirmation of that view, and it suggested that the trajectory of underlying inflation was a little higher than previously projected...it is also possible at this stage of a long economic expansion that inflation will be more difficult to contain, particularly if domestic demand does not moderate.
Despite changes caused by global financial market jitters, the real problem in the next parliamentary term is more likely to be inflationary domestic growth, a sit is likely that at both the CPI and underlying measures of inflation will be above 3 per cent on a year-ended basis by early next year.
Geoff Pryor
The Reserve's statement tipped inflation to rise to 3.25 per cent next year, above its 2-3 per cent target band, which meant the Reserve would continue to look to raise rates. Meanwhile Howard continues to throw money around like a drunken sailor.
Treasury projects an economy in which growth and inflation gently slow while commodity prices tumble, with the risk … that global growth is not as strong as expected. This scenario avoids examining Australia's most likely economic problem--- not the chance of global slowdown or a sudden fall in commodity prices---it is that we won't be able to handle the pressures of operating for a very long time at the very limit of our capacity.
So it is the very likely that there will be an interest rate rise in February in an attempt to depress or cool the growth in demand in the surging economy.
|
Gary,
As Peter Hartcher points out is that ever-rising interest rates mean attract huge sums of foreign capital chasing higher yields. That helps push up the dollar, and that, in turn, punishes exporters.