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Screech, screech - the sound of swooping RBA hawks

Christopher Joye
7 February 2011

Wow, you read the Overview of the RBA's Statement on Monetary Policy, and it sounds even more hawkish than the Economic Outlook section. Inflation here, inflation there, inflation everywhere:

“[PARA 1: WORLD IS EXPANDING RAPIDLY] The global economy grew at an above-trend pace in 2010 and a continuation of strong growth is expected over the next couple of years, albeit with some moderation in the pace...

[PARA 2: ASIAN INFLATION NATIONS] In Asia, growth looks to have picked up again recently, after softening in the middle of 2010. The Chinese economy is growing strongly and this is benefiting other economies in the region, with international trade and industrial production recording significant increases in the final months of 2010. Across the region, inflation rates have picked up, with food prices in particular rising strongly. In response, policy interest rates have been increased in most countries, although real interest rates generally remain quite low.

[PARA 3: US RECOVERY STRONGER THAN EXPECTED] In the United States, the near-term outlook has improved, with household consumption stronger than earlier expected and indicators of investment showing a gradual improvement.

[PARA 4: SUSTAINED INCREASES IN COMMODITY PRICES FUELING INFLATION PROBLEMS: The improvement in the global economy, together with some weather-related disruptions to supply, has led to generalised strength in global commodity prices over recent months. The spot price of iron ore is around its record high and there have been substantial increases in food prices and the prices of a range of base metals. The price of oil has also risen, although it remains substantially below its mid-2008 peak. This increase in commodity prices is adding to global inflationary pressures and, in the case of Australia, is leading to a further increase in the terms of trade from their already elevated level.”

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