It seems the IMF shares Henry’s concern about inflation:

In Australia and New Zealand, real GDP growth weakened slightly in 2006, reflecting slower domestic demand and the impact of a severe drought in Australia. Growth is expected to pick up during 2007-08. If inflation does not decline as expected, central banks may still need to tighten monetary policy further.

The IMF, in its biannual World Economic Outlook, is the latest to join in the chorus of gurus suggesting that the Reserve Bank may need to further hike interest rates to curb inflation.

The IMF considers oil-price driven inflation to be one of the most likely risks to the growth outlook, along with the slowdown in the US housing sector, financial market volatility and the disorderly unwinding of large global imbalances.

Indeed, the IMF highlights that oil options pricing suggests a 1 in 6 chance that a barrel of oil will be above $88 by the end of 2007. Does that mean a 1 in 6 chance that the US will attack Iran? Do they know something the rest of us don’t?

The Australian Bureau of Statistics (ABS) said today that Australian employment rose by 10K in March, with a far bigger (32K) rise in full-time jobs. There was a 0.1% drop in the rate of unemployment, which is back down to 4.5%. While the official unemployment rate understates the real rate of unemployment, this result is comforting to the government as the jobs boom rolls on.

In news from the US, the latest Fed board meeting minutes were released overnight and they were far more hawkish than markets had expected. The sentence that scared investors who had been betting on a rate cut went as follows: “all members agreed the statement should indicate that the committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.”

As Henry indicated at the time, the Fed statement accompanying the March 21 decision to hold rates at 5.25% (which had indicated to the naive that a rate cut was on the horizon) was in fact decidedly less dovish than previous statements. The minutes of the meeting released today seem finally to douse this theory.

Although inflation remains a concern for the Fed, it is well aware that the US economy is slowing. The latest Raff Report takes up this issue, suggesting that there are rising fears of stagflation:

Rising prices and rising inventories, combined with falling orders and shipments will heighten fears of stagflation. This has implications for interest rates and perhaps the Federal Reserve will need to lower interest rates, allow an element of inflation, rather than precipitate a recession with higher rates.

Read more at Henry Thornton.