CANBERRA—If the Reserve Bank of Australia's (RBA) intention was to cool demand when it raised interest rates in August, its plan has not worked - so far.
Such is the apparent resilience of consumers to higher borrowing costs that the central bank may have to consider raising rates again in the coming months, economists say.
Consumers spent a record $19.7 billion at the shops in August when interest rates were lifted to an 11-year high, the sixth straight month that retail turnover topped the $19 billion mark, data released today shows.
The RBA has left interest rates unchanged following yesterday's monthly board meeting, as widely tipped, but some economists believe if inflation data on October 24 shows a further build-up in price pressures the central bank could lift rates as early as its next meeting on November 6.
Prime Minister John Howard and Treasurer Peter Costello played down the risk while economic uncertainty remained in the United States in the wake of US sub-prime mortgage market meltdown.
"Although our country is very strong, very prosperous, and we have got a very strong budget, and inflation is low and interest rates are much lower than they used to be ... internationally this sub-prime development in the United States has not washed its way completely through the international economic system," Mr Howard told Southern Cross radio.
Mr Costello also said that while there would be challenges to inflation from oil prices, recent figures showed that inflation was still within the RBA's two to three per cent inflation target.
"The good news is that under our industrial relations system, you are not getting wages breakouts like we used to have, and you are not seeing double-digit inflation as we used to see when the terms of trade went up in the past," Mr Costello told journalists in Sydney.
But the chief of the country's biggest grocer says the drought will lead to more significant increases to the costs of food.
"The drought, coupled with export demand from India and China, means that the forecast is for more significant increases in the cost of food," Woolworths Ltd boss Michael Luscombe told the National Press Club.
However, he did not believe another rate rise was likely, with Woolworths' internal figures showing inflation was very low during the months of July and August, at less than two per cent.
"So I don't, on the basis of food prices (at Woolworths)... I wouldn't consider that a rate rise might be likely," he said.
Another interest rate rise, possibly during the heat of a federal election campaign, would be a crippling blow to the coalition's chances of being returned to power.
Opinion polls already show a solid victory for Labor, and a Newspoll released yesterday showed Mr Howard is starting to lose his lead over Labor's Kevin Rudd as the perceived best manager of interest rates.
Interest rates have risen five times since the 2004 election and a total of nine times since 2002.
The Australian Bureau of Statistics data showed retail trade grew by a seasonally adjusted 0.7 per cent in August, almost double market expectations.
HSBC chief economist John Edwards says the data demonstrates the August rate increase has had little impact on household spending.
"The retail sales increase... leaves the case for another RBA rate increase intact."
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