It appears that over the past two days most of Australia’s economic analysts have aligned themselves with Henry’s view of the economy. As Henry reported yesterday the RBA Governor Glenn Stevens, in a speech to the economists of Sydney, clearly insinuated that the central bank is wary of ongoing inflationary pressure, and interest rates are far more likely to be hiked than cut.

Yesterday’s ABS employment figures also supported the case that the economy is at risk of overheating. During September, the economy added 31,400 jobs, keeping the unemployment rate at a 30-year low of 4.8%. Taken over the longer term, the figures are even more stunning. Over the past year, the number of people employed has grown by 271,000, most of whom were previously not in the labour force.

It is clear that headline inflation running at 4% (the “trimmed mean” rate is 2.8%) is not consistent with price stability. Third-quarter CPI figures are to be released in twelve days, and Henry predicts that they will remain uncomfortably high despite falls in the prices of bananas and fuel. The Sydney Futures Exchange was yesterday pricing in a 98% chance of another hike in 2006 – precisely what Henry has been yelling himself coarse about.

The ABS figures go against the recent Roy Morgan Unemployment Estimate,which showed an increase in the unemployment rate of 0.7% from 6.6% to 7.3%. However, the Roy Morgan figures featured an entirely believable increase in unemployment in the drought ravaged rural and regional areas of Australia.

Indeed, according to Michael Coughlan of the Bureau of Meteorology’s National Climate Centre, we are facing the worst drought ever. The factor that is exacerbating this year’s drought is the two previous droughts that were felt across Australia in 2002 and again last year.

Henry commends the extra funding being spent for drought relief for farmers and, with such a huge surplus being delivered in the last financial year, he knows there is much more left in the kitty.

The cause of such a severe drought is either El Nino or global warming, or a mix of the two. The current heat wave sure feels like global warming to Henry – although he has learned that the direct evidence of the senses is rarely acceptable to modern science.

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