Divergent world

21 September 2010 By Ian Campbell

While the U.S. Fed mulls the deflationary threat, Australia and India are worrying about inflation. Soaring food and commodity prices reflect China’s boom. If global growth prevails, inflation should overcome deflation but stagflation may trouble weaker economies.

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The U.S. Federal Open Market Committee meets to discuss monetary policy on Sept. 21. The dollar slipped against the euro and other currencies on speculation that the FOMC may consider further monetary easing.

The Australian economy has "solid momentum" and "firms are expected to increase investment significantly over the period ahead," said the minutes of the Reserve Bank of Australia's Sept. 7 monetary policy meeting, released on Sept. 21. The RBA expected domestic demand in Asia to play "a more important role than it had done historically." The RBA judged that higher interest rates would be required to ensure that inflation remained consistent with its mediumterm target. The RBA's benchmark interest rate is currently 4.5 percent.

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