Is business borrowing fuelling inflation?

Borrowing by Australian businesses has grown by a massive 22.4% over the last 12 months, almost double to 12.4% increase in housing credit and well above the 14% growth in personal credit, according to an ANZ analysis of RBA data on credit growth released today.

The data may explain why the Reserve Bank of Australia has maintained a robust view of the Australian economy despite the volatility plaguing international credit markets.

In August, total private sector credit increased by 1.5%, of which business credit growth of 2.7% is the biggest component.

All in all, it tells a story of confidence across the economy, with businesses increasing borrowing to expand their capacity to take better advantage of the available opportunities.

And inflation data also released today provides the punchline. According the TD Securities-Melbourne Institute monthly inflation gauge, inflation rose by 0.2% in September, feeding into an annual inflation rate to 3%.

That puts inflation right at the top of the RBA’s 2% to 3% target range and gives credence to the market view that we are more likely than not to see an interest rate rise before the end of the year.

News like this will also fuel a strong Australian dollar, which at 12.55pm is worth US88.18c, up from yesterday’s US97.98c close. At the same time the S&P/ASX 200 is up 0.7% on yesterday’s close to 6581.6.


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