Economy points up: Rate rise may follow

While further rate rises are by no means certain this year, the chances of the need for further rate hikes to keep inflation in check can only be said to be growing currently. This is the message you get when reading between the lines of a speech by Reserve Bank (RBA) assistant governor Malcolm Edey on Friday. Edey emphasised that world economic growth would remain at strong levels in 2007, although he cautioned that it was too early to tell how great the adverse impact on growth would be from the fallout from the Chinese stockmarket correction and the US mortgage market ructions. As such, Edey says the bank expects growth in Australia to remain strong this year - with the economy butting up against capacity constraints. He said the latest inflation picture "suggests that some of the factors pushing up underlying inflation last year remain in place". This suggests the RBA remains wary of inflation and very much retains its bias towards raising rates rather than cutting them over the next six months or so. The latest economic data only serves to help colour in Edey's picture. This week's jobs figures showed the employment market continues in strong growth mode with another 22,000 jobs added, mostly full-time. The growth trend has remained very strong over the past year despite the odd monthly blip in the figures. The latest NAB business survey shows conditions in both the retail and wholesale sectors healthy and confidence rising. Resilient consumer spending, in particular, has boosted profitability and employment numbers, the survey shows. Even home lending might again be on the up. After being in decline following the interest rate hikes since mid 2006, the January figures show a rise in both the number and value of housing loans during the month. Most of this appears to be driven by the investment property market with investors buying up newly constructed dwellings to supply heavy demand in the rental market.