Some uncertainty despite Australia's strong growth and low inflation

Australia's national accounts revealed a cosy combination of strong growth and low inflation in the September quarter.

Gross domestic product (GDP) rose by 1.0 per cent in the quarter, which was in line with economists' forecasts at the start of the week, although business inventories, government spending and foreign trade figures had warned the outcome may have turned out a bit lower.

In fact, the expenditure-based measure of GDP did perform this way, with a rise of 0.5 per cent in the quarter, but the income-based measure was up by 1.2 per cent and the production-based measure was up by 0.8 per cent.

The Australian Bureau of Statistics (ABS) takes an average of the three - which theoretically should give the same result - as its bottom line GDP estimate.

Over the year, GDP rose by 2.5 per cent, but the growth rate of the June and September quarters was 4.8 per cent on an annualised basis after only negligible growth in the preceding two quarters.

To the extent that this acceleration represents a recovery from the first quarter slump induced by floods and other adverse weather impacts, it is not likely to be judged to be "too fast" by the Reserve Bank of Australia (RBA).

The price measures in the national accounts provide an additional source of comfort.

The implicit price deflator - a measure of average prices - for household consumption spending rose by only 0.3 per cent in the quarter and by 2.2 per cent through the year.

The RBA tries to keep inflation at an average of two to three per cent through the ups and downs of the economy.

What's more, the pace of inflation by this gauge slowed by nearly half between the first two quarters and the last two of the latest year, suggesting that not only are inflationary pressures weak, but getting even weaker.

For domestic final spending as a whole, including government spending and business investment, the implicit price deflator was unchanged in the quarter, the first time it hasn't risen since mid-1999.

Annual growth in the same measure slowed to 0.8 per cent. Slower annual growth was last recorded by the domestic final demand deflator in 1997.

For policymakers, including the RBA as it wonders whether to nudge the cash rate down further after two cuts since the start of November, the figures are not especially easy to interpret.

The main uncertainty is the durability of the growth spurt over the middle quarters of the year, something that will only be answered by careful monitoring of the flow of economic data, coupled with guesswork about the effect of headwinds from a crippled Europe, a limping US and a slowing China.

By the time the next RBA monetary policy meeting rolls around on February 7, some of that uncertainty may have been resolved.

- AAP