KEY POINTS:
Prime Minister John Howard is campaigning in Perth today, hoping his re-election chances haven't been reduced by the latest inflation figures.
Soaring food and housing costs pushed the underlying inflation rate yesterday to three per cent for the year - the top end of the Reserve Bank of Australia's target range.
Economists say the bank is almost certain to lift rates at its next meeting on Melbourne Cup day.
It would be the first election campaign rate rise in Australian history and the sixth consecutive rate rise since the coalition won the 2004 election on a promise to keep interest rates low.
A rate rise so close to the November 24 election would be disastrous for the coalition, which is battling to hang on to mortgage-belt seats where Labor believes it now has the upper hand.
The government is playing down the inflation result and Treasurer Peter Costello is warning of a recession if a Labor government rolls back the coalition's Work Choices industrial laws.
Labor says the government has ignored repeated warnings from the reserve bank that capacity constraints in the economy are an inflation risk.
Interest rates dominated talk on the campaign trail yesterday for Mr Howard and Opposition Leader Kevin Rudd, who was mobbed my children on a visit to a Melbourne school.
The prime minister will spend today campaigning in marginal seats in Perth, after launching the state Liberal Party campaign in the West Australian capital yesterday.
Mr Rudd is in Melbourne this morning, but he is tipped to travel to regional Victoria during the day.
- AAP
