It's a fair call Mika. If the share market does turn below 10,000 then there's very little chance of the recovery momentum continuing and maybe even turning down again; if that were to be the case then the economy will self regulate inflation.
However, we saw the figures this week; costs of fruit, vegies, food, rent, housing, utilities are all up. On the other hand the cost of fuel is down along with imported entertainment good, such as TVs which have fallen some 7% due to the AU dollar's strength!
This is the very real danger - we can control local inflation with interest rates, but we cannot control imported inflation. If the markets and the mining boom take a big turn for the worse then our dollar will sink with them, causing fuel costs to rise hard. Throw in the rising costs of other imported goods and the market will then need to sacrifice from other areas that are locally controlled; wages, services, rent, tradesmen fees, locally sourced food, etc.
Of course if our debt levels are at sustainable levels then there should be very little need for any concern.
