The TD Securities-Melbourne Institute monthly inflation gauge for November released yesterday ose by a further 0.
3 per cent for an annual rate of 3.4 per cent, well above the Reserve Bank's two to three per cent target range.
Mr Swan says he is adamant Labor's election promises would be implemented – including $31 billion in tax cuts – despite concerns public spending was fuelling inflation.
Dealing with inflation ‘a priority’
“Dealing with inflationary pressures in the economy is our number one priority,” he told ABC television.
“But we can also meet our election commitments because expanding the productive capacity of the economy is very important … in terms of the fight against inflation.”
Labor's agenda of lifting workplace participation, investing in skills and removing infrastructure bottlenecks would all help put downward pressure on inflation, he says.
“But over and above that, strict budget discipline is very important.”
Mr Swan says he took inflation warnings very seriously and was determined to find further savings in government spending.
“We are very serious – very serious indeed – about strict budget discipline, and that does mean making savings in the budgetary process and it also means redirecting some of those savings to vital expenditure which lifts the productive capacity of the economy,” he says.
RBA meets today
Meanwhile, the Reserve Bank of Australia (RBA) is widely tipped to keep official interest rates steady after today's final board meeting of the year.
But economists say homebuyers should be prepared for another increase when the RBA board next meets in February with little sign of inflation pressures being curbed as yet.
The central bank raised its official cash rate to 6.75 per cent last month, the second increase this year and 10th since 2002.
Optimistic despite international pressures
Mr Swan acknowledged “international storm clouds” were a possibility on the economic horizon, but says he is optimistic about Australia's outlook.
“We've got to do as much as we possibly can to make this economy as productive as it can be to insulate ourselves from the fallout of what occurs internationally,” he says.
Commercial banks continue to threaten to independently raise their mortgage rates because of their own higher borrowing costs on world markets due to the lingering fallout from the collapse of the US subprime mortgage market earlier this year.
Whether that increase is passed on to clients is up to the individual distributors.
Mr Swan pledged to involve Treasury more closely in policy areas such as education, skills, infrastructure and federal-state reform.
“It would be, I think, true to say that they haven't been as listened to in recent years as they should be,” he says.
“The Treasury has been locked out of the process. I think it's very important that they get re-engaged.”
The treasurer also warned banks against using the US sub-prime mortgage crisis as an excuse to lift interest rates in the absence of an official increase.
Urges banks to be cautious
“I would urge all of the banks to take great care and great caution. Because there have been six interest rate rises on the trot a lot of people out there are (under) financial pressure,” Mr
“I would urge all of our banks to think very long and very hard before they (go) putting up rates.”
Mr Swan says he will attend the Bali climate conference for talks on the economic impact of global warming.