Australia is booming and predictably the bears feasted on the stronger than expected rise in gross domestic product for the March quarter.
Theywarned of the rising threat from inflation, forecasting an interest rate rise (perhaps by August at the earliest) and helped push the Australian dollar to an 17 year high.
Andyou can say this commentary was hot air: none realising the irony of talking up a rate rise, pushed up the dollar as credulous hedge funds and others punted on higher rates here, which in turn added more anti-inflationary pressure to the value of our ever rising imports bill.
The reality is that inflation, as measured by the national accounts, is running around 2.4 per cent, perhaps a touch higher than the Reserve Bank would like, but nowhere near the 3 per cent-pluswe saw towards the end of 2006.
So we have the best of both worlds, or did have in the first quarter. High levels of balanced growth, with business investment and consumption playing roughly equal roles, and without too much pressure on resources or domestic prices.
It's obviously what the Reserve Bank saw as well because they didn't move the official cash rate from 6.25 per cent.
There was just no need to, and no need of a pre-emptive move to forestall a worry that emerged deep in the accounts.
Growth was the fastest for three years (unlike the US whose growth in the March quarter was the lowest for roughly the same amount of time).
Our gross domestic product (GDP) rose 1.6 per cent in the March quarter, easily beating forecasts of a one to 1.2 per cent increase.
That pushed the annual growth rate up to an above trend 3.8 per cent from 2.9 per cent in the December quarter.
The inflation-adjusted value of all goods and services in the quarter climbed to $240.29 billion, setting the economy on course for its first trillion-dollar year.
The Australian Bureau of Statistics said that consumption (household spending) added an 0.9 percentage point to growth, thanks to low unemployment and solid, but not too scary, wages growth.
Business investment added 1.2 percentage points to the growth outcome but that was boosted by privatisation of Telstra. But even after accounting for that, the contribution was well above all forecasts.
As expected from the Business Indicators released on Monday, the rise in business inventories in the quarter added another 0.6 percentage point to output in the quarter.
Normally that would be a concern, but coupled with the high level of consumption and the two per cent growth in retail sales in the quarter, it is not out of line with expectations.
It's a positive sign in that businesses produced more (and employed more people) because they saw good prospects of selling more goods later in the year.
The current account deficit and the drought detracted from growth and were the only negatives.
Underlying inflation slowed to an annual 2.7 per cent in the first quarter, within the central bank's 2-to-3 per cent target range.
The RBA warned last month that inflation was likely to acceleratenext year, given the strength of demand and a general lack of spare capacity after 16 years of economic growth.
But that was in the context of winding back their inflation forecasts for the rest of this year and 2008.
That warning from the RBA (which is hardly different to comments over the past 10 years) has been used by speculators to justify pricing in a greater chance of a rise in interest rates later this year or early in 2008
Remember these are the same people who had a rate rise priced in April, and when nothing happened, went for May, only to be thwarted by the surprise fall in inflation in the March quarter Consumer Price Index when it was issued in late April.
We should remember that for the first time in years we have a pretty well-balanced economy with output rising faster than demand and no upward pressure on inflation.
It's a rarity for Australia; perhaps that's why so many in the markets are having difficulty coming to grips with it.
And to slightly emphasise this point, the ABS revised up the fourth quarter GDP growth figure to 1.1 per cent from 1 per cent.
