As Labor’s dream team/odd couple pack their suitcases for an intriguing ten day national “under new management” tour, the RBA has decided to follow the lead of the Poms in yesterday’s fascinating test, and do nothing, leaving the cash rate target unchanged at 6.25%.

National Account figures released today by the ABS highlight the potential for stagflation that Henry warned of yesterday. Following on from yesterday’s worse-than-expected Current Account Deficit figures, today’s GDP growth figure came in at just 0.3% for the September Quarter in seasonally adjusted terms. This result was slightly lower than expected, but higher than some feared.

GilliRudd were hoping for an early Christmas present, and a free kick to kick off their tour with a 25 point rise, but the RBA has not played Santa. Amazing what a difference two days make — Henry has lamented the lack of performance from the Opposition for some time now, and reserves the right to continue to do so, but early signs are for a raised level of game from the bruvvers. Rudd’s first caucus meeting as leader was apparently very impressive and a chorus of snores has been replaced with grunts of agreement.

Rudd has our attention. The challenge will be for him to keep it.

In this regard and against the backdrop of some potentially worrying economic signs, the pre-Christmas tour takes on significant importance. “It’s the Economy, stupid” will be the catchphrase in the coming months. The clear challenge for GilliRudd will be to quickly cut through with a cogent economic argument that is both easily understood and well-supported by voters, in the process keeping Cossie and the Labor factions — to whom he has so far shown a refreshing tendency to ignore — at bay.

In the meantime, Henry repeats his earlier warning of stagflation, as spending flattens in every sector except retail, which is undoubtedly being propped up by the Christmas spend-a-thon. Throw in concerns about the drought, rising debt levels across the board, a very tight labour market and our unhealthy reliance on resources, and Henry fears we are preparing to confidently sail into 2007 in “HMAS A-Bit-Off-Balance”.

How much this resonates, and to what degree it can be capitalised upon will have much to do with Rudd’s success as the ALP’s new leader.

Read more at Henry Thornton.

Peter Fray

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