Inflation to rise in Australia due to flood damage: Treasurer

Inflation is expected to rise a quarter of a percentage point in the March quarter, as a result of Australia's devastating floods, Treasurer Wayne Swan said on Friday.

Almost two months of torrential rains in the northeastern state of Queensland have killed as many as 32 people, affected about 30, 000 properties, shut coal mines, cut rail lines and damaged crops. Flood waters spread south, affecting one quarter of Victoria state as well as towns in New South Wales.

State Premier on Friday confirmed that Queensland's flood disaster will cost at least 4.95 billion U.S. dollars, and will cut the state economic growth this year.

On a broader picture, Swan said the disaster had wiped out a significant part of the country's farming sector, meaning prices would rise across the country.

"Based on Treasury's numbers, the floods are expected to increase CPI (Consumer Price Index) inflation by about a quarter of a percentage point in the March quarter," he told Australia Associated Press in an address to the CEO Institute in Brisbane of Australia

"This spike should only be temporary, but it's inevitable that it's going to cost more for fruit and veg (vegetable) for a while. "

Treasury estimated the farming sector's losses could be around 0.99 billion U.S. dollars.

He added that Treasury estimated the disaster was likely to wipe half of a percentage point off Australia's Gross Domestic Product (GDP) in 2010/11.

A large part of the GDP loss would come from lost coal production and the drop in export volumes, as the Treasury estimated that several billion dollars will be lost in coal production.

Swan keep on saying that another industry that will suffer is tourism, as Treasury estimated the damage to tourism could be in the region of 297 million U.S. dollars.

Outside mining, agriculture and tourism, Treasury estimated the damage bill across a range of other industries at around half a billion dollars.

"You get the picture: there's no getting away from the fact that this disaster, not just in Queensland but Victoria and elsewhere as well, is going to cost Australia dearly," Swan said.

Expert expected that the central bank of Australia will increase interest rates very soon to contain inflation.

Source: Xinhua