RBA SAYS SPARE LABOUR CAPACITY IN AUSTRALIA BECOMING LIMITED.

SYDNEY, March 2 Asia Pulse - The Reserve Bank of Australia (RBA) today said that the remaining spare capacity in labour and goods markets was becoming limited.

The RBA today lifted the official cash rate by 25 basis points to 5.50 per cent, the first change in interest rates since December 2003.

"Over recent months, it has become increasingly clear that remaining spare capacity in the labour and goods markets is becoming rather limited," the central bank said in a statement following the decision.

The RBA said that this limited capacity was "starting to result in stronger inflationary pressures" with price increases at the producer level picking up at all stages through the second half of 2004.

The central bank said consumer inflation was also higher.

"Consumer price inflation, although currently consistent with the target, was higher than had been expected, and is forecast to increase to around three per cent by the end of next year," the RBA said.

The RBA also warned that with continued pressure on raw material prices, capacity constraints and reports of higher employment costs, the inflation forecast could be too low.