Forget those deflationary blues. At various stages of this world financial crisis a major concern of some economists has been that we would enter a period of deflation similar to that which occurred in Japan during the 1990s. Such a fate would see growth stop as people put off buying today what they knew would be cheaper tomorrow.

It was indeed a frightening prospect for those of us grown used to steadily increasing prosperity but we can probably worry no more about such conditions occurring any time soon. The June quarter consumer price index figures from the Australian Bureau of Statistics out this morning point to our next major economic problem being a good old and orthodox inflationary one. For while the June figures of a quarterly increase from March of 0.5 per cent and a change from the June quarter of 2008 to June 2009 that was just 1.5 per cent there were signs that underlying inflation is still on the high side.

When the Reserve Bank peers into its crystal ball to determine what interest rate is needed to keep price increases under control it takes the ABS figures and fiddles around to take out the most volatile items and produces what it calls a weighted median and a trimmed mean — two ways of looking at what is really happening to prices. It is only when these two measures put inflation in the range between two and three per cent that the Reserve Bank boffins express satisfaction.

Alas there is no satisfaction this morning in that 1.5% figure for the dreaded weighted median is still uncomfortably high at 4.2% with the trimmed mean also on the high side at 3.8%. This can be seen as a warning sign that the conditions the Bank feared only 18 months ago would cause an inflationary problem are still potentially with us. And if you wanted to be a gloomy fellow you would say that the difficulties governments throughout the world are going to have paying off their newly accumulated debts incurred in the name of fiscal stimulation are beginning to create circumstances where a a fair dinkum bout of inflation is their only way out.

A summary of this morning’s figures:

Seizing the centre ground — Prime Minister Kevin Rudd and his advisory team continue to do a magnificent job in positioning themselves close to the middle ground on issues in a way that makes it very difficult for their opponents to make much headway in attracting electoral support. This week’s example was the appointment of former Liberal Environment Minister Robert Hill to a new organisation designed to encourage us citizens all to make our contribution to halting global warming.

Now I personally have no way of knowing about the pros and cons of this evidence linking rising temperatures to man made carbon dioxide and I’m sure that most Australians are in the same position as me if and when they think about it. But I am also sure that a majority would consider it a sensible precaution to be taking some notice of the scientific experts and beginning to do something to curb emissions just in case. Labor at the moment appears to me to be in just that position — nothing too radical and frightening but some action nevertheless while the Opposition is still courting the more extreme opinion (which might end up being correct but electorally that will be of no use to them) of doing precisely nothing until every other country acts.

Quiet diplomacy gets its chance. The quietly diplomatic method of dealing with the Chinese Government about the accusations that Rio Tinto is a briber and corrupter persists because press and politicians alike can find out nothing new to talk and write about. Not that this should be taken as indicating that the Chinese Government is any less concerned about goings on in its iron and steel industry. The People’s Daily, the official mouthpiece of the Communist Party, this week wrote of several Chinese government departments, including the Ministry of Commerce and General Customs, launching investigations into the flow of imported iron ore on the market. The People’s Daily said:

Industrial insiders have been urging the government to take strong action to rectify the iron ore market after the Rio Tinto “spy” case was exposed.

China’s steel prices have been at low levels since they plunged in the fourth quarter of last year. Profits of iron and steel companies are under great pressure because of shrinking profits.

It is important for those companies to bring their costs down. However, Chinese steel makers are in a disadvantaged position in their negotiations with their iron ore suppliers, including Rio Tinto.

Speculation on iron ore imports leading to surging imports are blamed as the major reason for China’s weak position in those negotiations.

China’s monthly iron ore output jumped nearly 27 percent in June to 83.3 million tons, as demand for steel increased and prices rose.

There are 112 companies in China which hold import qualifications of iron ore, with 70 of them steel makers and 42 traders.

China’s steel industry will face bleak prospects of making profits this year following a 97.5 percent profit slump over the first four months of the year due to the industry’s overcapacity.

China’s crude steel production increased by nearly 1.2 per cent to 266.6 million tons in the first half of 2009 and reached 45.39 million tons in June.

If that continues, the annual production is expected to reach 552.2 million tons in 2009, up 10 per cent from 2008.

However, exports were significantly down. Export of steel billets, for example, shrank 97.6 per cent from January to April this year.