Inflation and wage spiral worries RBA

The Reserve Bank has warned that it is ready to increase rates again as early as next month as it battles to control inflation and rising wages. In its latest quarterly review, the RBA forecasts that price growth will be running between 3 and 3.75 per cent from now until some time in 2010. With interest rates already at their highest point in the last decade, the bank said that higher rates were "likely" to be required. "If it is not reversed reasonably quickly, the recent pick-up in inflation carries the risk of generating an upward drift in inflation expectations, which could feed back into wage and price setting behaviour," the report said. The share market took a dive following the release of the report, with the All Ordinaries index down 120 points to close at 5603 points.

Source: The Australian