The August RBA Board meeting is likely to rest easy on the inflation front, comfortable in the knowledge that underlying inflation remains around the mid-point of its target, plus or minus a tenth or two.
This means that interest rates will be on hold a little longer. It could well be the case that with inflation a neutral issue, other key indicators will determine when and which direction rates next move.
This is where the next few labour force releases are so critical. It would be hard to see the RBA remaining on hold if the unemployment rate rose to 6.25 per cent and wages growth remained anchored below 3 per cent in the near term.
The Australian dollar remains an issue for the RBA, especially with the resumption of the commodity price fall that is linked to a good but not great picture for the world economy. Not that a rate cut would drive the dollar lower, but it would help guard against the damage it is doing to the economy.
The fly in the jam jar is house prices. They still seem to be chugging along at a solid double digit growth pace and any move to cut interest rates may underpin a move towards a particularly uncomfortable rate of house price appreciation. Maybe non-monetary policy policies need to be considered to address this increasingly uncomfortable lift in house prices.
All of which comes back to the good news on inflation – it is not a concern in either direction at the moment. With the Australian dollar still high, wages growth still low, it is likely to remain a neutral issue for the remainder of 2014.