Inflation worries Reserve

The Reserve Bank remains concerned about the rate of inflation with governor Glenn Stevens saying that the headline rate is likely to reach 4 per cent in the March quarter. Hinting that further interest rate rises should not be ruled out, Mr Stevens said in a speech to Treasury officials that, given the influence of temporary factors on the headline inflation rate, more weight would be attached to the underlying rate which is around 3.5 per cent. "That is no disaster as a temporary phenomenon, but monetary policy has to be set with a view to winding that increase back within a reasonable period," he said. After the speech investors in financial markets lifted the probability of a rate rise in May from 22 per cent to 30 per cent.

Source: The Australian Financial Review