Homeowners could face another interest rate rise just in time for Christmas after the Reserve Bank warned inflation is growing as a threat to the economy. In its statement on monetary policy, the bank said inflation is likely to remain at the top of its comfort range for up to the next two years, partly due to high oil prices and strong global economic pressures. The bank recently lifted interest rates by a quarter of a percentage point, taking official rates to six per cent - the highest since early 2001. The NAB, Commonwealth and ANZ banks followed Westpac by lifting their standard variable rates in response to the Reserve Bank's move. The monetary policy statement gives a clearer picture of where the bank expects inflation to go in coming months, and what pressures are facing the economy. According to the Reserve Bank, rising prices - particularly in the commodities area - are starting to flow through the economy and pushing up inflation. There are signs of wages pressure, and businesses are finding it even tougher not to pass on their high production costs via prices. While saying inflationary risks were evenly balanced, the bank said apart from a global slowdown, all the threats on prices were on the upside. "The combination of rising world commodity prices, strong domestic demand and tight capacity has contributed to increased inflationary pressure in Australia," it said. "Raw materials costs have picked up as a result of broad-based increases in global commodity prices, and there has been a general pick-up in output prices at all stages of production. "Wages growth, although more stable recently, has been somewhat higher than its average of the past few years, particularly in the private sector." The bank also raised concerns about the government's $36 billion July 1 tax cuts, saying they had helped consumers keep spending despite high petrol prices. "While rising fuel costs may be having a dampening effect on discretionary spending, the tax cuts that came into effect in July, coupled with growing employment, will boost household incomes and should add to spending in the second half of the year," he said. Prime Minister John Howard rejected any suggestion the bank was being critical of the government's tax cuts. "The tax cuts were totally justified. I think average Australians would have been under greater strain from petrol prices if there hadn't been tax cuts in the budget," he told reporters. Economists believe the bank has signalled it will move on interest rates if there are any further signs of inflationary pressures. The bank's November meeting looms as the most likely date. Westpac's global head of economics Bill Evans said the odds were on a rate hike. "With the assertion that growth will pick up then the economy has little spare capacity, to be at the absolute top of your comfort zone for two years means that the risks are much greater that inflation will exceed three per cent than the risk of it falling below two per cent," he said. "Consequently risks are not even and we believe that there is still a tightening bias." Opposition trade spokesman Kevin Rudd seized on the Reserve Bank's comments about Australia's trade performance, which described exports as disappointing and being driven by prices rather than volume. "This is a stunning indictment of Australia's export failure - despite relatively buoyant global conditions," he said. SOURCE: AAP