The release of stronger than
expected inflation figures overnight played havoc with the market. The US Labor
Department reported an increase of 0.6 per cent in the CPI for April, far above
market expectations of 0.2-0.3%, indicating that the Bernanke’s pause in
monetary policy tightening is not going to come
soon.

Consequently stock prices fell sharply, with the Dow Jones industrial
average dropping 214.28 points, or 1.9%, to close at 11,205.61. It is
down 400 points since last Wednesday. At just after 7am, the Australian
dollar was being quoted at 75.86 US cents, down one cent on yesterday’s
local close. There was also severe volatility in the gold market,
closing at $US689.90 an ounce, down a massive $27 from its intraday
high.

The impact will be felt on the ASX
today, with early reports – such as this from The Fin– reporting
that “Soon after opening, the S&P/ASX200 was down 105.7 points to 5111.8,
while the All Ordinaries dropped 104.0 points to
5068.1.”

The latest Australian wage growth
figures are in, and as Alan Kohler commented on ABC TV last night, isn’t it
amazing that wages growth is so low (4%) after 15 years of robust
economic expansion – perhaps it’s because of the tax cuts. Perhaps also (Henry
adds) it could be the IR reform.

Maybe Dubya could get a few
pointers on how to run an economy from JWH while he’s in town, instead of just
pointing out how bald and ugly he is.

The ABS figures showed that total
rates of pay increased by 0.9% in the March quarter, 0.1% less
than market forecasts. This makes for a wage price index increase of 4% from a year ago. The low wages growth, as well as
sharply falling consumer confidence, is being used by all and sundry as
bulletproof arguments that the Reserve Bank won’t be increasing interest rates
again in the near future.

The Age’sJosh Gordon reports “Less than a month after the Reserve Bank lifted interest
rates by 25 basis points partly in response to concerns about wage increases,
the Bureau of Statistics has revealed average hourly rates of pay increased by
just 0.9% in the March quarter.”

It really is a good result and a
tribute to the good sense of Australian workers.

Read more at Henry Thornton.