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Last Updated: Wednesday, 24 October 2007, 08:51 GMT 09:51 UK
Australia rate rise threat grows
House being built in Sydney
A strong property market has contributed to rising inflation
Australia's underlying inflation surged in the three months to the end of September, rising from an annual rate of 2% to 3%, figures show.

Analysts said this meant an interest rate rise was now almost inevitable, and this could worry the government ahead of next month's general election.

Australia's rate-setting body meets on 6 November less than three weeks before the country goes to the polls.

Interest rates are currently at 6.5% - an 11-year high.

The widespread drought has put pressure on food, water and utility prices, and rents have soared amid a strong housing market.

'Great stress'

A further rate rise would add to the pressure on prime minister John Howard, some observers said.

His opponents, the Labor party, are well ahead in opinion polls and have seized on the economy as a key electoral issue.

"The government is failing to fight effectively against the inflation threat to the economy and those paying the price for this are working families on home mortgages," said Labor leader Kevin Rudd.

"Those home mortgages are causing great stress."

The head of market economics at ANZ Bank, Warren Hogg, said that the inflation data meant that a hike in rates next month was inevitable.

"In the end, we've got upward pressure on inflation, so I don't think the Reserve Bank's going to have any choice," he said.

Australia's treasurer, Peter Costello, said a rate rise was not necessary, but insisted that even if the cost of borrowing did rise it would not harm the government's re-election hopes.

Like the Bank of England in the UK, the rate-setting body, the Reserve Bank of Australia (RBA) is independent from the government.

Earlier this year, RBA governor Glenn Stevens said that it was "absurd" to suggest that political considerations were taken into account when deciding monetary policy.

SEE ALSO
Australian growth beats forecasts
04 Sep 07 |  Business
Australian rates at 10-year high
08 Aug 07 |  Business
Australia seeks skilled workers
08 May 07 |  Business
Australia's economy picks up pace
07 Mar 07 |  Business
Drought drag on Australian growth
20 Dec 06 |  Business
Australia PM to go for fifth term
31 Jul 06 |  Asia-Pacific

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