Some mixed news on the economy today – it suggest that the strong start to 2014 may have edged off a little, but that a resurgence in credit growth and on-going house price inflation are issues that will test the RBA in the months ahead. For now, with the economy rolling along with uneven pressures, the RBA is set to keep interest rates on hold next week and probably for some months beyond.

Credit growth was upbeat, with a monthly rise of 0.7 per cent in June, which was the largest monthly rise since March 2008. Borrowers are back in town! This means that annual credit growth leapt to a 5 year high of 5.1 per cent. This is probably the most important indicator for the RBA today – borrowers are ramping up their credit at the same time lenders are willing to extend that credit. Another few months of these sorts of increases and the RBA will not only be moving to a tightening bias but it will be delivering rate hikes to cool the credit lift off.

House prices rose 1.6 per cent in July which followed a strong 1.4 per cent gain in June to signal an on-going issue with housing affordability and mis-directed spending that just might be feeding into the early stages of a bubble. That said, high house prices provide a huge boost to household wealth which in turn supports confidence and to some extent, spending which is another reason why the RBA will be anxious to see house price growth start to cool when the rate of inflation is already in the upper part of the target band.

Building approvals fell a sharpish 5.0 per cent in June to register the fourth fall in the last five months. It now appears as if the dwelling investment contribution to GDP growth will ease back towards zero or could turn negative if the recent trend to less building continues. While the recent trend is clearly soft, it is too early to throw in the towel and conclude the house building lift off is in a sharp reversal. Let’s await another month or two of data.

The international trade price data confirmed the resumption of the terms of trade slump, after a brief respite earlier in 2014. In annual terms, export prices are down 1.9 per cent (but fell a thumping 7.9 per cent in the June quarter), while import prices are up 5.7 per cent. In simple terms Australia is getting less for the stuff it exports and is paying a whole lot more for the stuff it is importing. You don’t need to be Adam Smith to work out the consequence of this trend, especially if it gets more acute.

This terms of trade fall is a well known and oft debated threat to the economy, although it must be noted that the fall off in the terms of trade appears to be no worse than Treasury and the RBA have been assuming.

All up, the data reflect a sharp lift in credit growth and house prices – something the RBA would want to see moderate. The dip in the terms of trade, while disappointing, is no new news and now it is watch time for the flood of data over the next week or two.