Inflation demon still lurking- IMF warns Australia

A report by the International Monetary Fund (ASX: IMF.ax) has warned inflation remains a major challenge for Australia and the Reserve Bank should be prepared to act quickly if the outlook worsens.

The IMF says economic activity is beginning to slow in Australia and that is what is needed to reduce inflation.

But it warns the jump in commodity prices and tax cuts will not help in slowing the economy.

It says in the short term there is more chance of inflation increasing than easing and the Reserve Bank should not hesitate to raise rates again if the outlook worsens.

The IMF predicts it will take two to three years for inflation to return to its target band.

But it also says the May Budget is providing the required support and it backs the Government's moves to invest surpluses.

Treasurer Wayne Swan says the report is a strong endorsement of his first budget.

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Thu 10th July 2008 - 12:34pm