Mining Boom Pressures Australian Inflation

By Joel ScanlonSep 21 2010

Australia's Reserve Bank Governor Glenn Stevens said that interest rates will rise soon despite soft consumer spending and tight household budgets, because of the booming mining industry. Australia is riding the largest minerals and energy boom since the late 19th century.

Mr Stevens was speaking at a rural venue in Victoria when said that the economy is facing a fairly robust upswing which is threatening to push up inflation. The rise in inflation will not be due to irresponsible consumer spending but due to rise in labour costs in the over active minerals industry.

The RBA report noted:

Prospects in the resources sector were especially positive, and the increase in investment in this sector would have significant flow-on effects to the broader economy. Members observed that previous investment booms and increases in the terms of trade had posed significant challenges for economic policy, and that high levels of resource utilisation were likely to put pressure on inflation.

Mr Stevens accepted the fact that monetary policy was often seen as a blunt instrument which hit one and all even though just a single section of the economy needs restraining. This was because the RBA sets policy for the average Australian conditions. There is one set of interest rates for the whole Australian economy. Different interest rates for certain regions or industries do not exist. However the Board decided to leave the cash rate unchanged at 4.5 per cent.