Canada tightens
monetary policy, New Zealand
says cash rates will be higher for longer and China
seeks to rein in its rampant economy.

We are in the midst of one of the world’s
greatest asset booms, with the prices of most commodities, prime real estate and
shares in well run companies all setting new records. So far goods and services
inflation has been subdued globally due to fast productivity growth in the
USA, China and India. But even
goods and services inflation is now clearly on the rise, as shown by
Australia’s March quarter
CPI.

Australia, like the
United
States, is in the current account deficit
block. It would be in better shape if monetary policy had been tighter
throughout this boom and if fiscal policy had seized the opportunity of the
asset boom to provide some genuine tax reform. But we are where we are and the
pundits have joined Henry’s calls for interest rates to rise – “better late than
never”.

Alan Wood in The Oz joins Rory Robertson in asserting “Rate rise is ‘an even-money bet’.”
He adds that the strong CPI result does not make “an open and shut case” for a
rate hike, and the strongest case is provided by the “rude health” of the global
economy.

All this interest rate chatter is
pre-empting Henry’s advice for the Reserve. It is like Sophia Loren’s seventh
husband – he knows what to do (say) but the challenge is to make it
interesting. Watch this space, Sophia!

Read more at Henry Thornton.

Peter Fray

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