Third rate rise may not be far off

A flurry of robust economic data out over the last week further shows why the
Reserve Bank (RBA) decided to put up interest rates in August and suggests
that the earlier May rate rise had little effect on consumers. Another may
not be far off, but it won't be as soon as this Wednesday.

The RBA's credit figures were strong, showing that borrowing for housing
slipped back to more modest levels of 1.1 per cent growth in July. But that
nevertheless still leaves the annual rate of growth in home financing at 14
per cent and rising, levels that the RBA would consider a little too warm
for comfort. Personal credit growth, too, was above 1 per cent for the month
with overall credit growth approaching an annual growth rate of 15 per cent.

We would want to see the combined effects of two rate rises paring these
credit numbers back or the RBA will be itching to pull the interest rate
trigger again this year.

Meanwhile, new capital spending rose 1.1 per cent in the June quarter, not
huge, but it takes the annual rate of business capital investment to 18 per
cent – record levels. Retail trade rose 0.6 per cent in July lifting annual
growth to 6.2 per cent and construction work completed in the June quarter
beat expectations to rise 3.6 per cent.

Along with the jobs market still apparently going gangbusters, it all paints
a picture of an economy outperforming and no real let up yet in sight for
inflation. That means a third interest rate rise might not be far away. It
won't come in the September meeting on Wednesday but hold your breath for
the June quarter economic growth figures out the same day, the next big test
for interest rates.