Well, according to the market’s reaction to the TD Securities inflation forecast everything is looking rosy. The survey of 1,000 products by TD Securities and the Melbourne Institute showed that inflation increased by 3.9% for the twelve months to September.

This was a drop from the previous month from 4.6%. That spells good news and makes it even more likely that the Reserve Bank of Australia (RBA) will drop interest rates at its meeting today.

Unfortunately we won’t know the official figure until the ABS releases those statistics at the end of January next year. The RBA has convinced itself that it knows how to handle inflation and so it is therefore unlikely to hold off.

Amongst all the euphoria about this wonderful inflation figure let us not forget that it is still 3.9%. That means that during the past year you would have needed at least a 3.9% return on your money just to break even. It means that what cost you $10 or $20 or $100 last year will now cost you $10.39, $20.78 and 103.90 today.

So far wages have kept up the pace. The last statistics from the ABS indicated that wages had risen by 7.3% from June 2007 to June 2008. Therefore our only note of caution here is that after just been through the credit bubble will the next bubble to pop be the Wages Bubble? If the economy truly is destined to slow down it is inevitable that some businesses will find paying higher wages unsustainable.