Can inflation and rates be kept in check?

Another 50,000 jobs added in April and the employment market just keeps on keeping on, driving unemployment to just 4.4 per cent, a 32-year low. Jobs growth started to flatten as the economy slowed in the last half of 2006, but it has now picked up speed again.

Is this what's going to happen to inflation in coming months, putting interest rate rises back on the agenda?

There is no great risk of a rate rise for the moment with inflation back under control in the March quarter. But the latest jobs figures underscore the Reserve Bank's warning of last week; there is no guarantee inflation is going to stay in check later this year or next under such buoyant economic conditions.

The Federal Budget spending promised by Peter Costello, won't help the inflation fight. Particularly the $4 billion in pre-election handouts coming to workers, seniors, carers and trades apprentices over the next few months.

Add to that, a bumper retail spending splurge, which continued in March. Sales were up 1.1 per cent for the month and have picked up noticeably over the past six months, delivering very healthy annual growth of almost 8 per cent over the last year.

So the conditions for higher inflation and interest rates appear to be there, but don't discount the ability of Western economies in recent years to grow strongly without setting off inflation. This has confounded many and Australia has been among the best performers on this front.

We are witnessing a set of inflation-unemployment conditions that economists and politicians of previous decades would scarcely have believed possible.

On the downside currently, building approval numbers slumped 11 per cent in March canceling out a similar February increase. But the fall is almost entirely due to volatility in the apartment segment, surging the previous month, freefalling the next. House approval numbers were flat, while the value of approvals fell across the board.