Recent economic data shows that the Australian economy,
much like our political scene, is going through an uneven patch. Although it is
still too early to attempt to evaluate the full impact of the May rate rise,
softer retail trade figures and stronger building approvals is making life
difficult for those who try.

Retail trade fell 0.3% in May, led by department store
sales (down 1.9%) and clothing and soft-goods (down 1.4%). On the other hand,
May residential building approvals increased by 3.3%, led by a 7.2% rise in “apartments, flats and units” approvals.

NAB predicts a 1.3% rise in headline CPI (meaning 3.7%
year on year) led by the 10% rise in petrol prices and the Cyclone Larry caused
rise in fruit and vegetable prices. The underlying rate is likely to be at the
high end of the acceptable 2-3% range. This would make the RBA’s August
decision touch and go, but Henry keeps
repeating “raise the rates”.

But onto the main game – how does Henry see the
leadership deal/challenge debacle panning out?

Henry expects the PM to sit tight and let Cossie come to
him – perhaps goading him along the way. If the PM does slip away quietly (most
unlikely), it probably means that Cossie has something that would really hurt
him.

Henry forecasts either a stint on the backbench for
Cossie, or a humiliating and terminally damaging back-down. Less likely – but
still distinctly possible – is that the PM will get tapped on the shoulder by
Nick Minchin or another senior colleague, followed by a period of careful
transition to allow him to leave on a high.

Or it could all fizzle again, but in the end this could
be even more damaging to the Coalition than resolving it once and for all, as
there would be a lingering sense that they’ll be at it again at some point in
the future and this will not go down well with the punters.

More reading at Henry Thornton.