Resources heat up economy

The Reserve Bank of Australia may be forced to increase official interest rates for the third time this year when it next meets, as Australia’s rising inflationary concerns continue.

Figures released by the Australian Bureau of Statistics reveal that gross domestic product rose 0.6 per cent in the March quarter.

This result, which was double the market forecast, was primarily fuelled by household and government spending and construction activity, despite record high fuel costs, increased living costs and rising interest rates.

Year to date growth has only slowed moderately to 3.6 per cent, which still remains well above the 2 to 3 per cent rate range expected by the Reserve Bank.

The resilience and strength of the Australian economy, primarily due to the country’s resources trade bonanza, has many analysts concerned that the mining boom and associated infrastructure projects, which have helped to drive unemployment levels down to their lowest levels in nearly 30 years, will put pressure on wages growth, further fuelling inflation.

The Governor of the Reserve Bank, Glenn Stevens, said that in the short-term, inflation was likely to remain “relatively high”, but it should decline over time.

However, Stevens strongly indicated that another interest rate rise was likely if “demand did not slow as expected, or should expectations of high ongoing inflation begin to affect wage and price setting, [then] that outlook would need to be reviewed”.