KEY POINTS:
Canberra - Prime Minister John Howard has changed tack on interest rates, effectively conceding that another rise is virtually inevitable this week.
But Mr Howard and Treasurer Peter Costello are trying to turn the economic bad news to their advantage, warning that Labor would not be able to manage the challenges in the economy.
The Reserve Bank of Australia (RBA) is widely tipped to raise official interest rates to 6.75 per cent on Wednesday - the sixth consecutive hike since the 2004 federal election when Mr Howard vowed to keep rates at record lows.
Mr Howard says interest rates are under pressure from inflation and the voting public would have to ask itself whether the coalition would be better able to manage those pressures than Labor.
"If you have a strong economy, you have high world oil prices and you have a drought - some inflation in the system is unavoidable," Mr Howard told ABC TV.
Opposition Leader Kevin Rudd accused the prime minister of giving up on inflation.
"What I am stunned by with Mr Howard today is him hauling up the white flag on the fight against inflation by saying it is unavoidable," Mr Rudd said yesterday.
He promised a Labor government would do everything it could to maintain maximum downward pressure on inflation and interest rates.
But Mr Costello said while the economy was suffering pressures from the drought and high oil prices, the coalition's record was better than Labor's.
He said people who had taken out mortgages should not punish the government for the rises at the November 24 election.
"People who have taken out loans will want to know there's an experienced team managing the economy in the future," Mr Costello said.
"I wouldn't be trusting my mortgage to Wayne Swan and Kevin Rudd."
Mr Howard and Mr Rudd will both start day 22 of the election campaign in Sydney.
- AAP
