The Reserve Bank of Australia had no choice but to increase interest rates. The Australian government threw the 'kitchen sink' (metaphorically speaking) at the Australia economy swelling the deficit to $57.6 billion + . The inflationary aspect is the Australian goverment underpinning the housing sector with large home grants which are now dramatically being removed from the economy (completed end year 2009). But even with the 0.25% increase in interest rates now brining the cash rate to 3.25%, on the same day the Australian Bureau of Statistics releases the Terms of Trade for August 2009, with bullish Australian dollar buying which has caused exports to tank at 2%, an ongoing trend of declining credits to Australia's GDP; another cue for the stagflation argument (which is that prices in Australia have NOT decreased significantly even when the global recession hit in 2008) is the imports are slowing which would indicate that consumption is crawling along (even with a high AUD).
Yet the housing market is overheated again (thanks to goverment stimulus) and general costs of living have not decreased. The slight balance would be the higher AUD, but just as noted in imports collapsing at 3%. So consumption in Australia is not partying around a strong AUD. The private sector which is struggling to survive in now hitting a stagflationary environment, as private costs of doing business didn't decrease in fact they went up (if you work in the private sector you'll know this, as of 1st July 2009 - everything went up). It was the credit market freeze of 2008 that killed off a lot of businesses (not deflation), so a deflation argument doesn't ring true that caused business to close up. Australia could be a good bellwether for a global stagflation environment, with the US going into hyperinflation.
Also refer to: Australia caught in unemployment spiral crunch
AUS credits - exports
AUS Debits - imports
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