Mining boom could increase inflation: govt

Australia faces an increase in inflation as the mining boom is expected to continue its growth over the next two years, the Treasury says.

The Australian reports sources within the federal government predict the budget, to be released next week, will show inflation in the next two years will rise further than the Reserve Bank’s 2 to 3 per cent target band.

There was a 1.6 per cent increase in consumer prices in the first three months of the year and could indicate home owners will be slammed with further interest rate rises.

Yesterday, Treasurer Wayne Swan said the government had to “douse the price pressures” as the mining boom takes the economy to capacity.

According to The Australian’s report, the government will use the threat of inflation to justify spending cuts as it attempts to return the budget to surplus in 2012-13.

Swan said by the middle of 2013, the government expects to see unemployment falling to 4.5 per cent as 500 000 jobs are created.

"Secure employment is the first responsibility of a federal government and that is the central emphasis of this budget," Swan said.

"We are going to spread the opportunities of the boom."

The skills shortage in the resource sector has been increasing recently as the industry struggles to find enough staff to operate new and existing projects.

Prime Minister Julia Gillard announced in January that the government is considering allowing 22 000 foreign workers into Australia to help fill the gaps in employment and stressed the importance of workplace participation to reduce labour shortages.

Last month, the Camber of Minerals and Energy released a report showing 33 000 skilled workers willl be required in Western Australia alone by next year.

Swan told The Australian growth in this financial year will be lower than the 3.25 per cent expected after review of the budget in November.

World disasters, including the wild weather conditions in Australia and the disaster in Japan could bring it down to 2.25 per cent and the deficit for 2010-11 could be larger, at about $50 billion.

The estimations for 2012-13 surplus is based on a minimum of 4 per cent growth next financial year, as well as the following year.

Image: News Limited

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