Australian inflation rises above 4 percent for first time in nearly seven years

CANBERRA: Australia's annual inflation rose above 4 percent for the first time in nearly seven years, the federal treasurer said Wednesday, increasing the risk of another interest rate hike. Treasurer Wayne Swan called the figures ``unacceptably high'' and said next month's federal budget would put down downward pressure on inflation by targeting government spending.

``I think these inflation figures are a stark reminder of the price pressures hitting Australian families,'' Swan told reporters. ``They underscore the need for a responsible budget that keeps spending under control, and that tackles inflation and interest rates challenges.'' The Reserve Bank of Australia's underlying measures of inflation also jumped above 4 percent, well above the central bank's 2 to 3 percent target.

The Consumer Price Index for all groups rose to an annual rate of 4.2 percent over the quarter through March, up from a 3.0 percent annual rate in the previous quarter. Swan said the major inflation drivers were the rising costs of fuel, housing and food. The market expects interest rates to hold for the near term but the inflation data increases the chances that the Reserve Bank will raise its key rate.

The central bank has raised its benchmark rate a dozen times since mid-2002; the rate is now at a 12-year high of 7.25 percent. The Australian dollar surged to a 24-year high on the expectations of another rate rise, peaking at 95.07 US cents.