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.

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.

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.

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.

This is indicated in the minutes of the July 6 meeting of the Reserve Bank Board, which have just been released.

Critically, they indicate that the bank expects Australia’s underlying interest rates to ease over coming months.

The next official inflation rates, produced by the Bureau of Statistics, are to be published on Wednesday next week.

And the minutes say:”… the (Reserve Bank) staff expected them to show the underlying rate of inflation continuing to moderate in year-ended terms.

This would take Australia’s underlying inflation rate below 3 per cent for the first time in three years.

The so-called underlying rate is the one the Reserve Bank looks at, when it sets interest rates.

It aims to keep that rate between 2 and 3 per cent, over the course of a business cycle.

It differs from the Consumer Price Index measure of inflation, because the Reserve Bank likes to discount the effects of  one off factors, like the Federal government’s recent stiff tax increase, for cigarettes and tobacco.

The minutes noted that and added:”CPI inflation was, however, expected to rise to a little above 3 per cent, partly due to the effects of higher taxes on tobacco.”

The bank noted, too, that measures of inflation expectations had “eased a little over the past month.”

It has now increased interest rates six times, in the current round.

However the bank kept interest rates on hold this month, largely because it was worried about trends in both national and bank debt patterns in Europe.

The minutes also show that these worries are still, very much, alive, noting that:”amid heightened concern over the health of the European banking system, European authorities (had) announced that results of a stress test of the largest European banks would be publicly released in the second half of July.”

The Reserve Bank admitted that its board members believe that, “in order to settle markets, it (is) critical that the stress tests be regarded as credible and that plans be in place to deal with any capital shortfall identified by the stress tests.”

More at www.rba.gov.au

We already know that it held off doing so, earlier this month, largely because of global instability, caused by sovereign debt issues in Europe.

What else, though, is the bank’s board thinking, right now?

We will know more, early this afternoon, when the bank releases the minutes of its last meeting, on July 6.

Economists will be particularly interested in the bank’s assessment of the likely course of inflation in Australia.

If that is seen to be rising strongly, the chances of another early rise in interest rates would increase sharply.

That would alarm the Prime Minister, Julia Gillard, who has already announced that she will take Australia to Federal elections on August 21.

Especially as there have already been six interest rate rises in the current round.

Some economists, though, believe that the Reserve Bank could hold off on its next rate rise, until early next year.

They point out that the global economic crisis is still far from over, even though Australia has been enjoying a new minerals boom.

However the boom could ease, in the months ahead, as Australia’s biggest customer, China, has already taken steps to curb its economic growth, which hit an annual rate of 13 per cent earlier this year.

The Opposition Leader, Tony Abbott, has already been presenting the six recent interest rate rises, as evidence that the Labor government has been managing the Australian economy badly.

The Reserve Bank regularly publishes the minutes of its monthly board meetings.

Economists watch them closely, for signs of the bank’s likely actions, at future meetings.

So, increasingly, do young families, thinking of buying a home of their own.

They can be useful, too, for political parties, seeking to boost their support.

Julia Gillard has clearly recognises that.

This is what is driving her decision to make $200 million available to local councils in regional cities like these, to provide badly needed amenities, such as more houses, upgraded roads and better parks.

“It is expected that about 15 cities will be successful, receiving up to around $15 million each,” Ms Gillard said.

She has also promised, of course, that spending will be tight, in the forthcoming election campaign.

Ms Gillard has said, too, that she will explain where the money will be coming from, when proposed new spending is announced.

This time, at least, she has done just that.

“Funding for this program will come from a reprioritisation of existing funding for housing,” she said.

“It will gave no net cost on the budget.”

That, of course, implies that there will be losers, as well as winners, as a result of this announcement.

So there will be protests, as well as cheering.

The Housing Industry Association cautiously welcomed the announcement, saying it “makes sense.”

However its managing director Shane Goodwin warned that big backlogs have built up in these areas and said balance would be required in tackling them.

He noted that the announcement meant that 15,000 new homes would be built.