“Rate fears to haunt poll as inflation spectre looms” says David Uren in today’s Oz.

Dare we suggest this was one of the key points in Henry’s latest advice on interest rate policy?

There is a strong case for a pre-emptive rise in cash rates of 50 basis points. This might just jolt inflation expectations back into the zone of relative stability, and thus protect a fundamental pillar of the strong economic prosperity enjoyed by Australians for the past 15 years.

The more likely outcome of today’s meeting of the Reserve Bank board is the widely expected 25 basis point hike. The risk is that that decision would not have much effect in curbing inflation, meaning more anguished debate and further rate hikes well into 2007.

Uren’s article has two splendid graphs showing inflation “danger signs”. The first shows the price of tradeables (excluding petrol and food), and shows a swing from deflation (negative inflation) to inflation (rising prices). As we said in last week’s article: “There is in fact concern at the highest levels of international policy-makers at China’s ability to contain its boom, and continued double digit Chinese growth will ignite inflation there. Chinese inflation would reverse the great global force of Chinese deflation, removing a powerful anti-inflationary force from the global economy”.

Imitation is the sincerest form of flattery, so we are delighted to see this fine follow-up from our occasional colleague.

The expected political fallout of the rate hike seems masked in the latest polls, arguably because of the “sleaze factor” currently afflicting Labor.

Henry and elder son have been watching The Dismissal on the History Channel. It tells a tragic tale of incompetence and betrayal, a tale that, as it unfolded in 1975, caused the young Henry (then an ALP member) much anger, angst and outrage. Do not miss Tom Krause’s review of this classic political telemovie in today’s Oz.

But, from the perspective of 2006, the main impression is that Labor were clowns and the Liberals were complete bastards. Do not forget inflation reached 17% then, making John Howard’s “inflation will be lower under the Liberals” a safe bet for all time!

Read more at Henry Thornton.

Peter Fray

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