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Inflation gauge points to rate rise -

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Inflation gauge points to rate rise

Peter Ryan reported this story on Monday, February 1, 2010 12:22:00

ELEANOR HALL: There is further evidence this lunchtime that inflation is back as the Reserve Bank's
big economic headache And that has made a rate rise this week a near certainly

With the details, I'm joined in the studio now by our business editor Peter Ryan.

So Peter, these are not official inflation numbers. Where does this latest research come from?

PETER RYAN: Well, that is right Eleanor. Not official data but closely watched private data from TD
Securities and the Melbourne Institute and it certainly adds to the argument that Australia's
economy is getting warmer by the month, and that with limited capacity in the economy, there might
be a risk of overheating.

So the gauge shows that consumer prices rose 0.8 of 1 per cent in January. That 2.6 per cent
annually. That is right in the middle of the RBA's target zone and it follows last week's higher
than expected official data from the ABS that we saw in the consumer price index.

But it's the pace of both inflation and the recovery that will perhaps have the Reserve Bank
worried enough to push the rates' button according to Annette Beacher, senior economist at TD
Securities.

ANNETTE BEACHER: One thing that we have seen in the last couple of months is that the unemployment
rate has plummeted to 5.5 per cent so for example if the Reserve Bank was worried about lack of
spare capacity three months ago, they must be really worried about the spare capacity now.

If it looks like the economy will be fully employed in the next couple of months, that again comes
back to inflation and does suggest we could see some pressures on inflation through wages and skill
shortages.

ELEANOR HALL: That is TD Securities senior economist Annette Beacher.

Peter, the jobs market might be strong, but there's been a steep correction in the number of jobs
being advertised. How significant is that?

PETER RYAN: Well, once again, this is a private-gauged and once again, closely watched, it is from
the ANZ, it is the monthly job ads series which measures job advertisements in both newspapers and
on the internet. Now the number of vacancies advertised last month tumbled by 8.1 per cent from
December to 134,000 jobs or so advertised per week and that is the biggest monthly fall in the ANZ
job ad series in nine months. Even so, to put this into context January's result is still up 7.1
per cent from the cyclical low recorded in July 2009.

There are some seasonal factors at play given the Christmas season, and anecdotal evidence that the
withdrawal of government stimulus hurt Christmas sales and hiring.

ANZ's acting chief economist Warren Hogan says the correction underscores the fragile nature of the
economy.

WARREN HOGAN: Certainly this does put a bit of a question mark on just how quickly the demand for
labour was improving and therefore, you know give some question mark on how rapidly the economy is
coming back from the low point of early last year.

ELEANOR HALL: That is the ANZ's acting chief economist, Warren Hogan and global stock markets are a
bit jittery at the moment, Peter. Is there still talk globally of a double-dip recession?

PETER RYAN: Well, there's been a lot of optimism about a V- or U-shaped recovery, but hopes are
coming off a very low base and there has been a bit of talk as well about the W-shaped recovery
perhaps coming back. There are signs of slow growth in the United States, but unemployment is
sticking above 10 per cent, and while job fears remain consumers just aren't spending

And as you said, Wall Street fell 3.5 per cent last month. Shares in London fared even worse on
concerns mainly that trillions of dollars of debt are weighing down governments and there are
concerns that the world is breaking into camps for a period of stagnation. We are seeing Britain,
Ireland, Spain, Greece, Ireland, Japan, the United States submerging in debt. The emerging camps -
China, India and Brazil.

Australia is on the good list but our economy is hostage to any correction that we might see coming
out of China over the next few months.

ELEANOR HALL: Peter Ryan, our business editor. Thank you.