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Okay, let me get this straight. Nature deals Australia a bad hand in the form of a drought. The wheat crop fails. Wheat prices surge. The central bank makes the boneheaded mistake of treated that scarcity-driven relative price change as inflation -- and so punishes an already weak economy with higher interest rates? Oh my lord... From Bloomberg:

Australia's worst drought in a century may drive up inflation and interest rates even as it detracts from economic growth, the government said today.

The nation's agricultural forecaster cut its estimate for this year's wheat harvest by 42 percent and said the drought may subtract 0.7 percentage points from economic growth in the year to June 30, 2007. Prime Minister John Howard said interest rates may rise next month to fight inflation as food prices climb.

Thanks to reader Dan Benisz for the link!

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