RBA's done well with inflation

What of other geopolitical risks? At Copenhagen the world dodged, or postponed, the challenge of getting serious about limiting greenhouse gas emissions. Global warming sceptics took great delight in this outcome, and if they are right, the world will owe them a great deal.

If they are wrong, of course, they will be reviled as the world battles to adapt to a warmer climate, rising sea levels, accelerated loss of entire species and the fiscal burdens of amelioration.

Great movements of people are another real and present threat. War, irredeemable poverty, natural disaster and (possibly) the unnatural disaster of rising sea levels all have the potential to manufacture millions of refugees - indeed, this is a constant feature of the modern world. Australia is a highly attractive destination for refugees and non-refugees too, and we can expect continued and perhaps accelerating numbers of people trying to jump the immigration queue. One wonders if the peace-loving, democratic nation can summon the bastardry necessary to discourage floods of refugees.

Meanwhile, tweaking interest rates in Australia can do nothing to alter the course of the various geopolitical trends and risks. The board of the Reserve Bank has a primary duty to keep inflation under control, do its best to maintain the stability of the financial system and contribute to the welfare of all Australians. Inflation, as the graph shows, has been rising in Australia since the low (zero in "headline" terms) in the late 1990s.

Inflation has most recently turned down, after a series of six 25 basis-point increases in cash rates, for which the Reserve must be commended. In November 2007, when the previous federal election was under way, the Reserve Bank was playing catch-up. This time it is more nearly on top of a potentially difficult situation.

But any celebratory moment needs to be limited. There are many risks in the current global outlook and of these inflation is the most likely. The low of global inflation in the late 1990s may be compared with the low in the middle 1960s. That low point soon became the inflationary monster that dominated the 1970s. Forewarned is forearmed.