Price pressures soar

New figures confirm fears that price pressures have been rising sharply in Australia.

At the basic commodity stage, for example, producer prices rose by 1.5 per cent in the final three months of last year and by a massive 4.7 per cent over the year.

Developments like this clearly threaten the Reserve Bank’s stated aim of keeping Australia’s inflation in the 2-3 per cent range, over the course of a business cycle.

The bank’s chief, Glenn Stevens, admitted in a speech he made on Friday, that the authorities had, in the past, tended to discount so-called volatile items, such as oil and gas prices and the cost of refining petroleum which dominate this indicator.

However Mr Stevens also warned then that present circumstances are forcing both the Reserve Bank and its counterparts overseas to reasses all that. The question now, he said, is whether these developments will become permanent, and therefore more dangerous to the economy.

That is no light judgement. And we will all see what Mr Stevens and his board have decided about all this, when they meet on February 5.

Most analysts now expect an immediate rate rise, that day.

The drought, with its consequent rise in food prices, also contributed to the increase in stage one producer prices, that the Australian Bureau of Statistics reported today.

Upstream processing price rises were more moderate. They increased by just 0.6 per cent in the December quarter and 2.8 per cent over the 12 months to the end of December.

The bureau also reported today that both personal lending and commercial finance continued at high levels in November.