SYDNEY, March 1 Reuters Australia39;s economy grew at its weakest pace in a year last quarter as strength in trade was offset by rising interest rates and high inflation, and all the signs are a further slowdown lies ahead.

Indeed, without the sizeable contribution from trade, the economy would actually have contracted in the December quarter as rising prices eroded consumer purchasing power and led them to save less. Data from the Australian Bureau of Statistics ABS on Wednesday showed real gross domestic product GDP rose 0.5 in the December quarter, compared to 0.7 in the previous quarter and under forecasts of 0.8.

The soft result saw threeyear bond futures blip up 8 ticks to 96.470 , while the dollar briefly dipped .

Annual growth was still solid at 2.7, and the report contained plenty of evidence of cost and price pressures that underline the case for yet further increases in interest rates in the struggle against inflation.

Domestic prices rose at the strongest annual pace since early 1990, with services inflation stoked by a shortage of skilled workers and rising labour costs.

Separate data from the ABS showed its monthly indicator of consumer prices rose a smallerthanexpected 7.4 in the year to January, but that was still the secondhighest reading on record.

SAVING LESS

Price pressures have led the Reserve Bank of Australia RBA to raise its cash rate by 325 basis points since last May, taking it to a decadehigh of 3.35 and flagging more to come.

Markets…