Central bank of Australia issues inflation warning

by Richard Kilner

Story link: Central bank of Australia issues inflation warning

The Australian central bank has warned that inflation could be higher than anticipated in the final quarter of 2007, prompting fears of an increase in interest rates.

Inflation was hoped to fall within the 2-3% bracket, according to the CPI (Consumer Price Index) but is now predicted to stand at 3.25%.

The Reserve Bank of Australia has released its quarterly statement, in which it predicts that both the CPI and underlying inflation measures will surpass 3% during the next two quarters.

The third quarter of 2007 saw inflation at 3%, which provoked a 0.25% interest rate increase by the central bank last week.

Rates are now 6.75%, an 11 year high and bad economic news for John Howard’s campaign to remain in his post as Australian Prime Minister.

The bank’s longer term projections is that over a two year period inflation will become steady at just under 3%. However, the bank has also stated that a weaker than expected global economy (if there are disturbances as have been seen recently), could knock inflation off of its predicted course.