Contradictory signals in Australia

There was evidence of a slowdown in the Australian economy on Thursday with the release of weaker than expected retail sales figures for January and data showing that rises in house prices weakened significantly towards the end of last year.
Although retail sales rebounded after three months of declines, increasing 0.6 per cent from December, they were weaker than market predictions of a 0.8 per cent rise, mainly because of a fall in food sales.
The data came as John Howard, prime minister, suggested there was no need for further hikes in interest rates, a day after publication of poor fourth quarter growth figures and the country's first tightening in monetary policy in over a year.
The increase in official rates, by 25 basis points to 5.5 per cent, was controversial given the economic slowdown, yet many economists expect the Reserve Bank to move again in the coming months. For some time, the bank has been warning of wages growth and mounting inflationary pressures.
House prices rose 0.6 per cent in the December quarter, partly reversing a 0.7 per cent decline in the previous three months. But they increased just 2.7 per cent year-on-year, down from 8 per cent growth in the third quarter and 13 per cent in the second.
“Inflation is low, there is no sign that wages are breaking out and there are signs that growth in the economy has moderated,” said Mr Howard, who was re-elected for a fourth term in October after campaigning heavily on his record on the economy. “So if you put all of those things together, there's a respectable argument that there should not be another rise for a while.”
The prime minister, who when he came into office in 1996 cut back Australia's immigration intake and has taken a firm line on illegal migrants, also backed proposals for an increase in skilled migration to help ease labour market shortages.
At just over 5 per cent, unemployment is at a 30-year low, with many businesses complaining they are being constrained by the skill shortages. The government is believed to be considering a one-off increase of some 20,000 places in its annual migration programme, at present set at about 120,000 a year.
“We have an economic need at the moment for more skilled people,” Mr Howard said. “If part of the solution to that problem is to bring in more skilled migrants, then I'm in favour of it.”