The National Australia Bank, which studies price expectations, reports that they are now subdued.

As recently as the March quarter, Australians expected capital city house prices to rise by a national average of 5.2 per cent, in the 12 months, which were then ahead.

That is now down to just 1.2 per cent, a figure the bank says reflects “significant” slippage.

Melbourne has been hit particularly hard.

The bank says residential property prices in Melbourne had shown  “very rapid growth” over the past year.

However expectations of further price rises there, over the next 12 months, had fallen from 5.8 per cent in the March quarter to just 0.7 per cent now.

Perth people now expect residential property prices, in their mineral rich city, to rise by just 2 per cent over the coming year.

Sydney people expect a 2.1 per cent rise, while those in Adelaide expect residential property prices to rise by 22. per cent and Brisbane people expect a rise of just 0.8 per cent.

In all four cases, current expectations are well down on those seen as recently as the March quarter of this year.

Canberra people, though, are still relatively optimistic about residential property prices.

Back in the March quarter, they had expected a 5.1 per cent average price rise, over the coming 12 months.

Even in the national capital, though, expectations have been trimmed.

They now expect to see a rise of just 2.9 per cent.

The bank did not publish price expectation figures for either Hobart or Darwin.

It did note, though, that residential property is currently outperforming all other property sectors.

The bank said it was doing this by quite a wide margin.

Jeff Bresnahan, of SuperRatings, which produced the research, said  had  seen REST “outperform all competing public offer funds” over that period.

The Retail Employees Superannuation Trust, REST, finished in fine style, producing an 11.4 per cent return for 2009-10.

The fund, which anyone can join, has 1.8 million lucky members.

The share market crash, which precipitated the global economic crisis, has been a nightmare for Australia’s superannuation funds, which invest heavily in global share markets.

The industry, overall, manages some $1.2 trillion.

This is one of the biggest pools of money, anywhere in the world.

However  the industry’s long awaited recovery is under way – and Mr Bresnahan said that, as recently as March average returns close to 15 per cent, had appeared likely for 2009-10.

But a faltering share market – and  fees – had worked together to reduce that average to just 9.8 per cent.

The agency studied balanced fund options.

Mr Bresnahan said that while the latest result might not “look great on paper, in a relative sense balanced options had done what they set out to do.”

They had prevented significant losses, through diversification.”

Mr Bresnahan warned, though, that Australia’s superannuation industry is still not over the shocks produced by the global financial crisis.

“Long term figures for super fund returns are now starting to feel the pain of the prolonged global financial crisis, with the 10 year result falling to 4.5 per cent per annum,” Mr Bresnahan said.

His agency’s research also revealed some of the pain the industry has been experiencing, in the wake of the crisis.

He said personal contributions to Australia’s  super funds  had fallen by “more than 50 per cent”  while new memberships and transfers between funds had been running “significantly lower” than ever before.

The Australian Bureau of Statistics reported today inflation, measured on the Consumer Price Index, rose by 0.6 per cent in the June quarter, to an annual rate of 3.1 per cent.

However, the quarter’s rise was driven, largely, by a 25 per cent increase in tobacco excise, that the Federal government ordered, to discourage smoking.

The Reserve Bank, which set Australia’s interest rates, discounts one off factors, like that, when it makes its assessments.

The bureau said the trimmed mean, which the bank does watch, when setting rates, rose by 0.5 per cent in the June quarter and 2.7 per cent over the year.

That annual rate was down from 3 per cent at the end of the March quarter.

The Reserve Bank aims to keep Australia’s inflation rate, on this measure, between 2 and 3 per cent, over the course of a business cycle.

It has already raised rates six times, on the current upswing.

However, it left rates on hold, after its board meeting earlier this month.

Its board will meet again, next Tuesday, to review rates.

In the minutes of its last meeting, the bank said that concerns over both national and bank debt levels in Europe had been a factor in its decision to keep rates on hold at that time.

However, an official assessment, released since then, concluded that most European banks are in a position to withstand a further downturn in the global economy, if one should occur.

That might encourage the Reserve Bank to raise rates, once again, next Tuesday.

Although economists are divided on when the next rate rise might be, very few are confident that the present round of rate rises is already over.

Some of Australia’s best thinkers fear that we are.

The costs are real.

You will, for example, pay more to build your new house, as a result of it.

And an isolationist mentality would seriously damage Australia’s reputation, internationally.

There are clear overtones of Fortress Australia both in Julia Gillard’s talk of a “sustainable” Australian population in future and the Coalition’s promise to cap immigration at 170,000 a year.

The two major parties both present their policies as reasonable responses to Australia’s present circumstances.

However the nation’s university dons, builders and farmers are all worried by what they are saying.

You should be too.

Like mining, tertiary education is one of Australia’s most successful industries.

But it says it is now faced with “a perfect storm” – and that the population debate is part of  its troubles.

Professor Peter Coaldrake, who chairs Universities Australia, says this country has been “nourished” by a flow of international students,  from the times of the old Colombo Plan.

“This has enabled Australia to establish enduring links and goodwill, connect with the world and enhance our reputation, especially in the Asia Pacific region,” he says.

That says nothing of the money that the tertiary education industry brings to Australia – and the high paying jobs it creates, either.

There have been problems, of course, including recent violence against Indian students in Australia. So Australia is being watched, very closely, at present.

Professor Coaldrake warns that immigration policy must not  be allowed to create a “fortress Australia” mentality, in this country.

Dr Harley Dale, of the Housing Industry Association, and Brett Heffernan of the National Farmers’ Federation have also been vocal on this subject.

Dr Dale says a new survey, which his association produced with Austral Bricks, showed that Australia is short of skilled workers in 8 of its 13 skilled building trades.

This is particularly serious, as the industry is already falling well short of existing demand for new houses.

Those shortages, of course, also mean that builders – and home buyers – will have to pay more to get the skilled workers they still need.

The usually conservative National Farmers’ Federation is worried, too.

It sees a labour shortage, of some 100,000 people, developing in rural areas, over the next five years.

Mr Heffernan says a mandatory cap “gives rise to little flexibility in meeting emerging business needs.”

These warnings, from industry leaders, might well prompt Australians to ask themselves , too, whether the current hysteria over the 4,000 or so boat people, wbo arrive each year, is justified.

Like other immigrants, in the past, refugees have made significant contributions to Australian life.  They could do so, in future, too.

Don’t doubt his word on that.

After all, the bank did just that, before the 2007 election, much to the chagrin of Peter Costello, who was then Treasurer.

We can report, confidently, that his successor, Wayne Swan, would be equally upset, if the Reserve Bank did it again, after its August meeting.

So how likely is that?

More likely, than would have seemed to be the case just a few weeks ago.

The Reserve Bank made no secret of the fact that possible weakness in European bank played a significant part in its decision to keep rates on hold last month.

And several economists have assumed that continued weakness in European national and institutional debt situations might well cause the Reserve Bank to hold off on its next rate rise until November, December or even into the New Year.

However, two possible changes could affect that assessment.

The authorities have now concluded, after an investigation,  that most European banks would survive the pressures, that a second downturn might produce.

And the Australian Bureau of Statistics is due to report on Australia’s inflation performance, during the June quarter, tomorrow.

The Reserve Bank makes no secret of the fact that it aims to keep Australia’s inflation rate within a 2 to 3 per cent range, over the course of a business cycle.

However the high profile Consumer Price Index is not the rate it looks at, when it makes that assessment.

The figure it studies, before making its decision, is the so-called underlying rate, which excludes special factors like fluctuations in petrol prices.

The Statistician produces this figure too, although it usually gets less attention than the raw CPI rate, which the Reserve Bank calls the “headline rate.”

The underlying rate, though, will be the one to watch, when the bureau releases its inflation figures tomorrow.

The background, too, will be important.

The Reserve Bank has now raised interest rates no less than six times, in its current round of  revisions.

It now regards its target wholesale rate, of 4.5 per cent    as close to “normal.”

However, very few economists would be prepared to say that the current round of upward revisions is already complete.

Most believe that the Reserve Bank’s target rate will be raised to at least 4.75 per cent.

The main debate, among economists, is over just when this will happen.

This strategy is firmly based on the – probably false – premise that the the time has now come to keep a very tight rein on Federal spending.

(The International Monetary Fund, after all, is saying that the biggest danger the world now faces, in the wake of the global economic crisis, is premature withdrawal of the stimulus measures  that governments around the world introduced to offset that collapse.  Of course, they are juar a bunch of foreigners, anyway, so what would they know?).

Be that as it may, both major parties are taking great care, this time, to say exactly where the money, for their relatively modest promises, will be coming from.

So what are the latest developments, in this – so far – bloodless battle?

Tony Abbott is promising what he calls “real action” on child care, saying the Coalition will commit an extra $89 million for measures that will make this amenity “more affordable.”

He said this would be bolstered by the re-introduction of indexation of the child care rebate, to help eligible families meet their child care costs.

The money would be paid weekly to child care providers, Mr Abbott said .

Meanwhile, the Federal Treasurer, Wayne Swan, issued a paper putting the total cost of Labor’s new policies, for the August 21 election at $747 million.

If that 747 was an aircraft, you might think it was too heavy to fly, at that weight.

But Mr Swan’s statement did not stop there.

He said the offsets, announced against this policies, now add up to a truly impressive $797 million.

So the net effect, according to Mr Swan, would be a $50 million positive effect on the budget’s bottom line.

The Treasurer also urged Mr Abbott to submit his campaign promises to the Federal Treasury, for expert costing.

Labor’s – already costed – promises of course include its commitment to cash for clunkers.  That is a $2,000 cheque, for every owner of a pre 1995 car, who replaces it with a newer, more fuel efficient vehicle, after January 1 next year.

So hold your old one together, with band-aids if necessary, until then.

Meanwhile, campaigning in Launceston, Julia Gillard promised that, if re-elected, the  Government would spend $96 million from next year to train 270 doctors and 2,000 nurses over the next 10 years.

She said the funding had already been allocated in the budget.

“This is an important step forward for our emergency departments right around the country – more doctors, more nurses, trained with the skills they need to work in emergency departments,” Ms Gillard said.

He attacked both government spending and government debt repeatedly, making some appealing points.

“The government will have to live within its means,” he said, “like you do.”

He repeatedly accused the government of spending recklessly, sending government debt to unsustainable levels.

Mr Abbott particularly attacked the government’s stimulus spending, saying there had been “too much” “too soon.”

These statements all have strong, popular appeal.

We all know that reckless spending, in our private lives, leads to bad consequences.

But we have just experienced the most serious collapse in the world financial system since the Great Crash of 1929.

That produced Keynsian economics.

There’s nothing mysterious about that.

The Nobel Prize winning economist, Paul Krugman, explained that, very well, saying governments could spend more, when economies were flat, or in recession, and less when they recover again.

What, he asked, is so difficult to understand about that?

Tony Abbott declared, repeatedly, that he is worried about the levels of debt the Gillard government is incurring, by its heavy borrowing, which he said is crowding out other potential borrowers, like the business people who drive the economy.

Once again, this is an appealing political point, unless, of course, you are burdened with some understanding of economics.

Debt is always a worry, isn’t it?

The Reserve Bank Governor, Glenn Stevens, had something to say about all this, just last week.

And he was quite blunt about it.

“There is virtually no net public debt in the country at all in contrast to much of the developed world,” he said in reply to a question put to him, after a speech he gave in Sydney.

“The most recent figures out of Canberra was a peak of five or six per cent of GDP,” he added.

“So far from that being the highest in history, it is closer to the lowest.”

Oddly, perhaps, Mr Abbott did not quote Mr Stevens, in last night’s debate.

Sadly, Ms Gillard didn’t either.

This view is hardening among economists as the nation’s economic data – outside the mining sector – softens.

Australia has already had six official interest rate rises in the current round.

The Reserve Bank Governor, Glenn Stevens, has also declared that his board won’t hesitate to raise interest rates, for a seventh time, next month if it  believes that is necessary.

However, the National Australia Bank says business  conditions  slipped again in the June quarter with easing in  sales and profitability outweighing improved employment conditions.

So it predicted that the RBA to wait until late 2010 – possibly November and December – before raising rates, once again by 25 point basis points, to 5 per cent.

It also predicts a further tightening – to 5.5 per cent – by the middle of next calendar year.

That would be a response to expected inflation pressure.

However the NAB based its prediction of a reprieve on softer recent  data.

“The  quarter was characterised by European financial turbulence, softer  equity  prices, exchange rate volatility and the flow-through of higher interest  rates,” it said.

However, the NAB also noted that its survey had been conducted while the dispute over the Federal government’s plan for a super profits tax on the mining industry was at its height.

The survey was also conducted before Julia Gillard replaced Kevin Rudd as Australia’s Prime Minister.

‘Monthly  surveys suggest that conditions bottomed out mid-quarter,  especially  for  profitability,” the NAB said.

“Forward  orders remained  positive  and  capacity utilisation increased,” it added.

The bank also said its survey suggests that demand growth remained solid and employment grew in the June quarter.

And new signs suggest that the nation’s economic growth might have peaked, at least in the short term.

The forthcoming election – and the rapid passing of the Federal government’s stimulus packages – are accentuating the spending pause, which has now become evident.

Higher fuel prices and the six interest rate rises, that Australia has already seen in the current round, are also contributing to this slowdown.

“People are just waiting to see what happens with the election – so getting that out of the way will be a good thing.” Woolworths’ Chief executive Michael Luscombe said.

The retail giant had just reported a full-year sales increase of 4.2 per cent,  a result that fell short of  market expectation of a 5 per cent rise.

This announcement followed news earlier yesterday that the Westpac Melbourne Institute leading index had slowed for the second successive month.

The bank’s Chief Economist, Bill Evans, said that although the growth rate in the index is still “remarkably high” this slowing still indicates that economic growth may have peaked, at least in the short term.

The index points to the likely pace of economic growth three to nine months in the future.

Woolworths’ admitted that it has been among many Australian retailers that have had to curb prices to maintain sales.

However Mr Luscombe said  this strategy is proving effective.

“This combination has driven increased market share, customer numbers, items sold and basket size,” his  company said in a statement.

Meanwhile, Bankwest economist Tim Crawford warned that a tightening labour market would make the Reserve Bank wary of inflation risks.

The Reserve Bank Governor, Glenn Stevens, has also  warned that his bank won’t hold off on a necessary increase in rates, at its meeting next month, merely because a Federal election is imminent.

Those are two possible long term effects of the global economic crisis.

The Reserve Bank Governor, Glenn Stevens, who spoke of these prospects, said:”…big events echo for many years.”

He is not alone in his worries about the future.

The Nobel prize winning economist, Paul Krugman, has even warned that the crisis could tip the world into a new Depression, like that it experienced in the 1930s.

Mr Stevens stressed that he was speaking of global, not specifically Australian, prospects.

Although technical, his speech was based on ideas that can be expressed fairly simply.

He noted. for example, that  the crisis had forced several governments to back their countries’ banks with capital injections.

And he said capital is usually more expensive than the savings that these banks usually lend to their business clients, in normal times.

As the extra costs have to be covered, expenses for the broader community would rise, as businesses which borrow now would have to charge their customers more.

Mr Stevens warned, too, that business activity throughout the world could be “crimped” as the tighter regulations imposed on the world’s financial systems take effect.

That could reduce business activity throughout the world.

Mr Stevens said these risks, in turn, illustrate the need for “a balanced approach” to these issues.

“… some governments took on bank ownership in order to ensure the replenishment of capital that had been too thin to start with,” Mr Stevens said.

The capital of those banks had also been “depleted by the losses on securities and loans,” he said.

Mr Stevens said some of the money governments had invested in that way had already been restored.

“In fact about 70 per cent of the funds invested by the United States in banks have been repaid,” he said.

“And the US Government expects to make an overall profit from these capital injections,” Mr Stevens added.

“Nonetheless for a period of time governments are carrying a little more debt than otherwise as a result of the provision of support to the banking system,” he said.

Mr Stevens admitted that the recent downturn “was a bad one in many countries.”

“And that is because it was associated with a financial crisis,” he said.

So “the major countries generally are going to have significantly higher public debt relative to GDP after the crisis than before, and the debt ratios will continue to rise for several more years,” he said.

By any reasonable standard, events like the global economic crisis are dangerous.

The last event, of this magnitude, the crash of 1929 – and the Depression which followed it, for example, led directly to
World War II.