After a day-long meeting in Sydney with the head of the Reserve Bank Glenn Stevens, the Prime Minister Kevin Rudd and the head of the Treasury Ken Henry Mr Swan warned that Australia faced an “extended period of elevated inflation” which he said would put upward pressure on interest rates.
The inflation figures to be released next Wednesday are expected to show that Australia's underlying rate of price movement has climbed well above the Reserve Bank's ceiling of 3 per cent...
The Melbourne Institute's independent measure inflation guage released on Monday suggests that the rate has already reached 3.7 per cent.
The current official measure of inflation released in October during the election campaign put the underlying rate at 3.0 per cent.
The Reserve Bank pushed up interest rates in November during the campaign in response.
Emerging from yesterday's meeting Mr Swan did not not attempt to put pressure on the Reserve Bank to hold rates steady in the face of next week's expected bad news and said nothing to indicate that he did not expect rates to rise again.
Independently of the Reserve Bank each of Australia's big five private banks has increased its rates this month, bringing the standard variable mortgage rate to somewhere between 8.67 per cent and 8.77 per cent.
Another hike of 0.25 per cent from the Reserve next month would take most standard variable mortgage rates to around 9 per cent for the first time since October 1996.
After speaking to the Reserve Bank and Treasury officials yesterday Mr Swan said that the coming “extended period of elevated inflation” had been bequeathed to Australia by the outgoing Coalition government.
His government would attempt to take pressure off inflation by being ruthless in the May budget, ushering in a “new era of fiscal discipline”.
The budget cuts would go well beyond the $10 billion in savings outlined by Labor during the campaign.
“It is critical we demonstrate restraint as we frame our first budget because that sends a clear message to the Reserve Bank that the Commonwealth Government will do whatever is in its power to put downward pressure on inflation,” Mr Swan said.
“It won't be easy. These inflationary pressures took a long time to build and it will take a lot of hard work and some time to turn them around.”
The Coalition's Treasury Spokesman Malcolm Turnbull called on Mr Swan and Mr Rudd to stop blaming the previous government and to start governing.
“Mr Rudd told us that when he was Prime Minister the buck would stop with him. We’ve heard no plans for keeping the economy strong,” he said.
“We’ve seen his new Treasurer, Wayne Swan, drop the ball and be treated like an utter mug by the big banks. Their welcome note to him was to put their interest rates up without any movement from the Reserve Bank.”
