australian intertest rates about to soar

Bank bills for one month hit 6.9%+ today...the futures market in Australia have nearly priced in a 0.5% interest rate rise.
Todays inflation figures are terrible and if this trend continues we could be looking at a 5% inflation rate meaning substantial rises in interest rates.

Inflation gauge rise rings interest rates alarm
September 3, 2007 - 10:36AM

http://www.smh.com.au/news/business/inflation-gauge-rise-rings-interest-rates-alarm/2007/09/03/1188671836013.html

AdvertisementA private-sector measure of Australian inflation rose 0.5 percent in August, the second straight month of hefty increases, suggesting interest rates might have to rise yet further to restrain price pressures.

The increase in the TD Securities-Melbourne Institute Monthly Inflation Gauge was broad-based and followed a sizable 0.6 percent gain in July.

Based on the survey it was possible headline consumer inflation could rise 1.37 percent in the third quarter, even more than the second quarter's 1.2 percent jump, said University of Melbourne economist Don Harding.

Such a substantial increase would be alarming for the Reserve Bank of Australia (RBA) which had already raised interest rates to a decade high of 6.5 percent in reaction to the spike in inflation recorded for the second quarter.

"The TD-MI Monthly Inflation Gauge has risen strongly for the second consecutive month, providing evidence that inflation is accelerating," said Joshua Williamson, a senior economist at TD.

"Strong domestic demand adds to the risk that inflation will break out above the RBA's 2 to 3 percent target band," he added. "To reduce this risk, the RBA will need to raise the cash rate."

The central bank holds its September policy meeting on Tuesday but investors are pricing in no chance of a hike given the recent turmoil in financial markets.

Williamson suspected the RBA would wait to see the third quarter consumer price report on October 24 to confirm the pick-up in inflation.

"This makes the November 6 Board meeting the first opportunity to raise official interest rates," he said.

Monday's TD-MI gauge showed inflation for the year to August stood at 2.9 percent, compared to annual consumer price inflation of 2.1 percent in the second quarter.

The trimmed mean of the TD-MI gauge, a statistical measure of underlying inflation, increased 0.3 percent in August, following a 0.5 percent rise in July. Growth for the year was 3.1 percent, above the RBA's inflation target band of 2 to 3 percent.

Core inflation excluding volatile fuel, fruit and vegetable prices, jumped 0.6 percent in August, keeping the annual rate up at 3.8 percent.

Contributing most to overall inflation in August were rises in the price of housing construction, rent, deposit and loan facilities, and vegetables.

That was partially offset by falls in the prices of fuel, overseas holiday travel and accommodation, telecommunications, and audio, visual and computing equipment.

The biggest change was observed in the price of vegetables which rose 9.9 percent, while the price of fuel continued to fall, dropping 3.8 percent.

Reuters