I’ve crowed repeatedly about Australia’s ability to dodge the global financial crisis (see Like Keanu, Australia Dodges Recession). Seems my roosters are coming home to roost.

Yesterday the S&P/ASX 200 index dropped. Why, with all this good news, would the stock market drop? Seems inflation is now on the rise – up to an annual rate of 3.4%. In its simplest terms, inflation measures the cost of goods and services. Notice your electric bill has gone up? What about water? Utilities are components of the inflation measurement. And while plasma televisions may have dropped overall it costs more and more to live in Australia. There are more of us willing to pay more for goods and services – so we’re in effect bidding up the prices. “Do I have $5.50 for this bunch of bananas?”

Next week The Reserve Bank meets, and as the inflation rate is above its guidelines we can expect the fourth rate hike in a year.

That’s right – it’s getting more expensive to live here so they’ll raise mortgage rates. That’ll stop you from bidding up those bananas!