While the latest Australian inflation figures surprised on the downside, the latest US figures, released overnight, shocked on the upside.

The US headline CPI grew 0.2% in January, following an increase 0.4% in December, but the more closely watched core inflation, which excludes food and energy, rose 0.3% after 0.1% increases in the three previous months. Most importantly, year on year core CPI grew 2.7%, after 2.6% rises in November and December – somewhat at odds with Chairman Bernanke’s predictions for “moderating inflation”.

One factor making the result more surprising was the 1.5% fall in energy prices, after a 4.2% drop in December. The fact that oil has jumped almost $9 a barrel since its January trough will also bolster the inflation hawks.

This US result further supports that RBA’s tightening bias confirmed in Glenn Stevens’s speech yesterday. David Uren’s interpretation today: “The Reserve Bank has scotched the Howard Government’s hopes of a pre-election interest rate cut, with its new governor declaring it is possible rates will rise this year.”

It’s all happening, folks. Steve Lewis goes further: “Coalition’s towers of strength crumble.” It’s not just the economy, there is also “Britain’s decision to slash troop numbers in Iraq.”

Henry’s Lexington reports direct from Washington: “The US’s adversaries and competitors are becoming more aggressive and probing. We see this from Russia, China, Iran, North Korea, Venezuela, al-Qaeda… to name a few. As discussed yesterday, our collective leadership must begin a dramatic reprioritisation of our strategic priorities… now.”

Then there’s climate change, with another chapter in Federal/State relations about to be written, or not as the case may be. Unless and until actual actions emerge, actions which impose real costs on the community, we mere voters should have no confidence that the message of the climate scientists has made any real progress.

The government is undoubtedly having a bad trot, and it’s beginning to look about as confident and competent as the Aussie one-day cricket team.

Last night Henry helped celebrate the 90th birthday of Mr Hugh Rogers, much loved Melbourne business and philanthropic leader. An old mate, a senior academic, asked “Are we gunna win?” Henry fumbled for an appropriate answer as his old mate leaned to place his good(ish) ear close to Henry’s mouth.

“Howard’s struggling, and Rudd’s doing pretty well,” Henry meekly opined. “We’ll belt the bastards, and it’ll be far better for us,” Henry’s old mate responded.

Lots of people are coming out at present, with “It’s time” as the theme. The upside for the government lies in the Reserve Bank’s cautious optimism about the economy.

Read more at Henry Thornton.

Peter Fray

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