This is in the process of being scaled back, but indications are that private spending will pick up noticeably in the period ahead. This is especially the case for business investment. Income growth will add to spending capacity; over the past year, reflecting the rise in the terms of trade, nominal GDP in Australia rose by 10 per cent.
Graph 3  If, as expected, growth in Australia increases to an above-trend pace, it is likely that in due course underlying inflation will pick up from its current level of 2¾ per cent. We are currently forecasting it to rise to around 3 per cent by the first half of 2012 (Graph 4).