The chances of interest rates rising at the Melbourne Cup meeting of the Reserve Bank board strengthened this morning as the underlying inflation figures tracked by the RBA showed a much sharper rise than the headline figures produced by the Australian Bureau of Statistics.

The weighted median figures for the March and June quarters were revised upwards to 2.9% growth, so the RBA’s oft expressed fears that the economy was being pressured by greater than expected price pressures has been confirmed.

RBA Governor, Glenn Stevens has said several times in the past few months that there seemed to be a mismatch between the headline inflation rate, which was lower than it seemed when compared to strong employment levels, strong economic growth and rising investment levels.

Stevens told the House of Representatives Economics Committee in August that “it has been a little bit difficult to read what the current trend in inflation has been over recent quarters.”

And after today’s higher than expected figure (most estimates from the market were for a rise of 0.7% to 0.8% in the underlying rate) the bank has no choice if Stevens follows the sentiment he expressed at that meeting in response to a question from ALP member, Craig Emerson, about an election campaign rate rise:

If it is clear that something needs to be done, I do not know what explanation we could offer the Australian public for not doing it, regardless of when the election might be due. I do not think that there is any case for the Reserve Bank board to cease doing its work for a month, in the month that the election is going to be.

I doubt very much that members of the public would regard that as appropriate. So, should that data, or other data for that matter, make a clear case, I feel we have no choice; nor should we have any choice.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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