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Australian boom raises inflation fears
Central bank likely to increase interest rates further to cool surging economy.
- AP
- Published: 00:08 June 5, 2008
- Real estate is advertised for sale at the Edgewater development area in Melbourne. Australia’s economic growth exceeded estimates in the first quarter, showing resilience to high interest rates and surging living costs.
- Image Credit: Reuters
Sydney: Australia's economic growth has defied a series of interest rate rises and grown more strongly than expected so far this year, re-igniting concerns about inflation and increasing speculation that the central bank is not done hiking rates.
Gross domestic product rose 0.6 per cent in the first three months of 2008 from the last quarter of 2007, and 3.6 per cent from the same period a year ago, the Australian Bureau of Statistics said yesterday. Economists had expected growth of 0.3 per cent on the quarter and 2.9 per cent on the year.
The data renewed fears that the economy is overheating as rampant demand from China and other emerging markets for Australian resources such as coal and natural gas fuels growth and causes prices to rise.
Concerns about inflation have prompted the Reserve Bank of Australia (RBA) to lift interest rates aggressively since mid-2007 to 7.25 per cent, the highest level in more than a decade.
Off track
Policymakers had hoped that the higher interest rates and a rising Australian dollar would cool the economy enough to ease inflation, but analysts said yesterday's data indicates the central bank's plan may be off track.
"The RBA had forecast that GDP [growth] would slow to 2.5 per cent by the end of the second quarter," said Matthew Johnson, senior economist with brokerage ICAP Australia.
"I can't see any way in which that could occur." ANZ analyst Sally Auld said the data showed that the economy had grown more strongly in early 2008 than most observers, including the central bank's board members, thought it would.
"This really reinforces that the risk to interest rates for the rest of this year is to the upside," she said.
The Australian dollar surged by half a US cent after the data, to $0.9553.
At its latest meeting, the Reserve Bank board on Tuesday left interest rates unchanged but also signalled continuing concerns about inflation, saying it would review its outlook if demand did not slow as expected.
Finance Minister Lindsay Tanner said the data showed that inflation was still a major challenge for Australia, adding that there was still some positive news in the growth figures.
"In the context of a slowing world economy, today's national accounts are reassuring news on economic growth, but they also show that the fight against inflation is far from over," Tanner told reporters in Canberra.
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