The inflation dragon has been slain. But it is not Treasurer Wayne Swan, with his sword of economic policy and shield of fiscal conservatism, standing victorious over the body. Instead, the global recession and panicked consumers are to blame, even if it was a bit of an accident.
And there is a question about whether it is the correct dragon corpse anyway.
This week's consumer price index shows a headline inflation rate for the past year of 1.5per cent.
Low inflation is generally thought of as good for people. It means things are not getting more expensive too quickly, which is nice for the family budget, and it is more likely to prompt the Reserve Bank to lower interest rates, which is good for those with mortgages.
Labor was all about inflation when it won power in 2007. In a way, it had to be. The nation was booming and there was barely a cloud on the economic horizon.
The only problem was that the strong economy was fuelling inflation, which in turn was pushing up interest rates.
It was one of the few economic worries held by voters at the time, and also an easy political point to score when you consider that the former government had promised to keep interest rates low and then presided over one rate hike after another.
So began the war on inflation which was variously described as a dragon in need of slaying, a genie out of its bottle and the reason why we needed big public service cuts (which never fully eventuated). So has the war been won?
A 1.5per cent rate is very low, well below the Reserve's target band of 2 per cent to 3per cent. Some economists believe it will actually dip below the 1per cent mark later this year.
But if we look a bit more closely, we realise all is not quite so simple.
For a start, the Reserve Bank prefers to use a measure known as underlying inflation. Basically, it strips out some of the more volatile changes and looks at inflation's core rate. For the past year, that is 3.9per cent. It dropped from 4.15per cent and should keep heading downwards, but that is still a fair bit outside the target band.
The Reserve also has to be forward-looking. It is more interested in the inflation rate that is coming, rather than the one that has just been recorded.
The minutes from its board meetings show members getting more and more optimistic about the economy. It now thinks the recovery will begin this year, albeit late in the year and gradually.
So much for the biggest recession since the Great Depression.
The recovery means the Reserve might have just noticed a twitch in the tail of the dragon's corpse.
That twitch could prompt the central bank to push the global recession and Treasurer Swan out the way to give the body another whack in the form of an interest rate rise.
That might sound silly when you consider the world's financial system has collapsed around us, unemployment is steadily rising and, as Prime Minister Kevin Rudd and his minions, sorry ministers, like to constantly remind us ''we are not out of the woods yet''.
But there is already unprecedented stimulus supporting the nation's economy. While the cash handouts are becoming a memory, the next stage of the Government's plan infrastructure projects is just getting under way.
Interest rates have already plummeted. Sure, they are among the highest in the advanced world, but Australia is also the best-performing economy in the advanced world.
Official rates are at a 49-year low of 3per cent. A neutral cash rate that is, one that is neither stimulating the economy nor causing it to contract is about 5 or 5.5per cent. That means the current rate is providing quite a kick along to demand, especially for first homes.
Even with a modest hike, the cash rate would still be boosting the economy. And it has to go up at some point, otherwise the dragon's tail will not just twitch, but it will spring to life, take off and start wreaking havoc on the country again.
This is why the Reserve Bank board has such a tricky job. It has to balance what is happening in the economy now with what might happen soon.
Act too quickly in raising rates to more sustainable levels and the green shoots of recovery that everyone is excited about at the moment will wither away and die. Act too slowly and risk resurrecting that dragon and causing prices to spiral out of control.
Although it makes its decisions independently of the Government, that does not mean there are not ''political'' influences on the board. It needs to be seen to be doing the ''right'' thing as well as actually doing the correct thing.
That is the argument of many economists who believed the board was holding back on further rate cuts until the rising unemployment rate began to pick up pace so it could be seen to be doing something.
The argument here is that expectation and confidence play a big role in the economy. A rate cut, however small, could help to keep the momentum of the recovery rolling along but there is also the risk that it could accelerate the recovery even more.
And confidence is such a fickle beast. There is also the argument that the Reserve only cuts rates when things are going badly, therefore another cut could cause people to panic and think that everything is not quite as rosy as the bank and other forecasters would have us believe.
This is why the Reserve has been keeping the interest rates tiller steady in recent months, waiting to see which direction the economy will go before stepping in again to steer the course one way or another, all the while keeping a weather eye for that immortal dragon.
Email a friend