Fed: Inflation figures could cement May rate rise

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Fed: Inflation figures could cement May rate rise

By Jim Hanna, Economics Correspondent

CANBERRA, April 23 AAP - Home-buyers could soon be forking out more in repayments ifofficial figures tomorrow showed inflation still hovering around three per cent, economistssaid today.

A big fall in the unemployment rate to 6.3 per cent earlier this month already tippedthe balance toward the Reserve Bank of Australia raising interest rates the day afterits May 7 board meeting.

Another firm inflation figure tomorrow - the annual rate is already 3.1 per cent -would all but cement the move.

Economists said rising petrol and house prices, strong job growth, and businesses takingadvantage of buoyant household demand to lift prices, pushed up inflation in the firstthree months of 2002.

The consumer price index (CPI) is tipped to come in at 0.8 per cent for the quarterand 2.9 per cent for the year - near the limit of the RBA's 2-3 per cent inflation targetband.

"With current inflation likely to be at the top of the band and the growth outlookremaining strong, the (RBA) will have little option but to raise rates," Westpac generalmanager, economics, Bill Evans said.

"Westpac thinks that a number below market expectations would still mean a rate rise on May 8."

Experts believe the RBA will lift its official cash rate to 4.5 per cent from 4.25per cent, adding nearly $24 to the monthly repayment on a typical 25-year, $153,100 homeloan.

HSBC senior economist Anthony Thompson said annual CPI was unlikely to drop to theRBA's mid-point target of 2.5 per cent unless quarterly outcomes of 0.5 per cent or lesswere achieved for each remaining quarter of 2002.

The average quarterly outcome last year was 0.775 per cent and price pressures haveincreased this year, he said.

"We find it difficult to foresee significantly lower average increases ... given strongdomestic demand and increased reports of margin building in private business surveys,a firming labour market and falling unemployment rate, and pressures on costs from recentincreases in oil prices and strong increases in business insurance premiums," Mr Thompsonsaid.

Meanwhile, Prime Minister John Howard said Australia's solid economic growth was madepossible by his government's industrial relations reforms.

"One of the reasons our economy is doing very well at the moment is that we have veryhigh levels of productivity ... because we have a far better industrial relations systemthan used to be the case," he told Victorian Liberal MPs in Melbourne.

AAP jph/sw/jnb/sb

KEYWORD: ECONOMY NIGHTLEAD