the fat lady is at the stage door

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    Mind you she is having trouble getting out of the stretch limo.

    By Matt Wade
    October 16, 2003

    Australians are wealthier than ever before and the mood of consumers more buoyant than at any time in the past nine years, despite the prospect of higher interest rates.

    Private wealth in Australia jumped 14.7 per cent to an all-time high of $4325 billion last financial year, new figures show.

    It was the fastest rate of wealth growth for 14 years, after accounting for inflation, according to CommSec analysis of wealth estimates released by the Federal Treasury and the Bureau of Statistics yesterday.

    CommSec analyst Craig James said the wealth boom was driven by surging house prices, which climbed about 20 per cent last year.

    Rising wealth and low unemployment helped boost consumer sentiment this month. The Westpac-Melbourne Institute consumer sentiment index rose 1.5 per cent to 117.8 - its highest mark since 1994. The index has risen 21 per cent since March.

    The Prime Minister, John Howard, said the lift in consumer sentiment was "the latest piece of independent evidence of the good economic conditions that Australia is now enjoying".

    The stronger Australian dollar, which was hovering near the US70c mark yesterday, and improvements in the sharemarket helped boost confidence.

    But Westpac's global head of economics, Bill Evans, warned that the steady stream of good economic news was likely to result in higher interest rates.

    The last time the consumer sentiment index rose to current levels, interest rate rises totalling 2.75 percentage points followed within five months, he said.

    "The strength of consumer sentiment will provide further clear evidence to the Reserve Bank that interest rates need to rise."

    Mr Evans said it was possible the Reserve might raise rates in December, though he expects a rise of only half of one percentage point by the middle of next year.

    The consumer sentiment survey showed a big jump in confidence about the economy's prospects over next 12 months and the next five years. But respondents were less confident about their own finances as the possibility of interest rate increases grows.

    "Sentiment about finances compared to a year ago fell by 2.6 per cent and the outlook for finances over the next 12 months fell by 2 per cent," Mr Evans said.

    There was also a 1.9 per cent fall in the number of people saying it was a good time to buy a big household item.

    The confidence of those with a mortgage fell by 1.5 per cent, reflecting the expectations that interest rates are set to rise.

    Research by investment bank JP Morgan, released yesterday showed the high level of household debt meant interest payments as a proportion of household income were at the level of December 1990, when rates were 13 per cent.

    JP Morgan chief economist, Andrew Pease, warned that a modest rise in interest rates could cause the domestic economy to slow sharply next year as households contain spending.

    "The biggest question mark is over how households will react."

    Despite the strong signs the economy is gathering momentum, some analysts do not believe the Reserve is in a rush to raise interest rates.

    They point to low inflation, uncertainty about the strength of the world economy and the rising Australian dollar - which makes exports less competitive - as reasons for the Reserve Bank to stay its hand.

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