Higher inflation in Australia to signal more rate hikes

Lots of inflation data this week, and Australia sets the ball rolling with a hot set of numbers today.

The Sydney Morning Herald reports:

The private sector TD Securities-Melbourne Institute monthly inflation gauge released today reflected a rise of 0.6 per cent in December, following consecutive 0.3 per cent rises in October and November.

The inflation gauge also rose by 3.7 per cent over the year, following a 3.4 per cent advance in the 12 months to November...

"Not only has inflation pressure remained strong, it intensified in December,'' TD Securities senior strategist Joshua Williamson said.

That suggests at least another interest rate hike from the central bank.

"Resilient domestic data and confirmation of an inflation break-out strongly advance the case for an increase in interest rates at the February RBA board meeting, even with the financial markets pricing in the risk of a US recession,'' he said.

"It would seem that only a bout of even more intense market weakness stands in the way of an interest rate rise on February 5.''

Apparently many others agree. From Bloomberg:

Australia's central bank may raise the benchmark interest rate in the first quarter of 2008 to quell inflation, economists say.

Governor Glenn Stevens and his board will increase the overnight cash rate target by a quarter-point to 7 percent, according to 15 of 25 economists surveyed by Bloomberg News. Policy makers meet to decide on rates on Feb. 5 and again on March 4.