The strong Australian dollar will have a direct impact on the Consumer Price Index figures when they are released on Wednesday.
Whether it's enough to temper the impact of domestic cost pressures (which we will see in today's Producer Price Indexes) is another thing.
The fall in import costs seems to have been concentrated in consumer goods and not oil and petrol and whether that will give an accurate picture of the real price pressures in the economy is debatable.
Certainly many economists don't think so and suggest the fall in import prices will be more than offset by sharp rises in food costs, rent and house owning costs, and government charges which have a greater impact in the CPI.
But the dollar's rapid rise from its fall in August to just under 77 USc to Friday's close of 89.04 USc (and over 90 USc last week), suggests the credit freeze and associated strains in the markets in the first six weeks of the quarter, won't show up in price indexes.
The Australian Bureau of Statistics reported that import prices fell by 0.8% in the September quarter and by 5.5% for the year to September.
The ABS said the fall in the latest quarter followed the surprise 0.1% increase in June quarter 2007.
It said the fall in the September quarter was "driven by price falls in telecommunications and sound-recording and reproducing apparatus and equipment (-5.6%), office machines and ADP machines (-4.9%) and road vehicles (-1.8%).
"These decreases were partly offset by increases in prices paid for petroleum, petroleum products and related materials (+2.7%) and iron and steel (+3.8%)."
Within the total, the price of consumer goods fell by 1.0% in the quarter and 4.0% in the year to September.
The prices for imported consumer goods have been declining for the best part of five years, driven by the combined effect of a rising exchange rate (up 34% in the past five years) and the flow of goods onto global markets that have steady or falling prices – especially from China.
That's benefited the likes of retailers such as Dick Smith and Tandy at Woolies, Harvey Norman and JB Hi-Fi, but not people who don't splurge on Plasma and LCD screens, Ipods or the latest computers and games.
The drought is boosting grain, flour, bread, milk and meat costs across the board and will continue doing so into next year. These pressures have probably offset any benefit from falling petrol prices, for instance.
Domestic petrol prices have fallen in the past six weeks because the higher dollar has offset rising prices. But that will change this quarter as oil bounces around $US88-$US90 a barrel.
The key factor in the CPI will be the performance of tradeables (such as consumer goods) which are influenced by the dollar and which account for around 40% (or a touch more) of the CPI and the non-tradeables.
They include government fees, costs and charges, rents and housing costs (which are now probably the single biggest influence on the CPI, according to some analysis). These are the nasties that rarely seem to dip or ease significantly.
So the bottom line looks like being a rise in the CPI of between 0.8 and 1.1% for the quarter.
Anything under will postpone any rise to 2008, from 0.8% upwards (and depending what happens to the RBA's own inflation measures which will be published as well on Wednesday), the pressure will be on rates to go up in an election campaign.
The RBA was lucky that it got the August rate rise in two days before the subprime problems bit deeply and froze liquidity around the world.
Those problems have resurfaced in US and European markets in the past fortnight, and don't look as though they can be waved away by just another Fed rate cut.
The problems in markets and the Fed's reaction will temper the RBA move, but not alter it.
The futures market gives a November 7 rate rise a 40% chance. Master O'Reilly is probably a better chance to win the cup on November 6, at this stage, but form does change, as we all know.
Also released on Friday by the ABS was the Export Price Index for the September quarter and the year to September.
The figures contain a gentle warning about our terms of trade, should a high Aussie dollar persist for some time, and if this is associated with a slide in commodity prices from what are probably unrealistically high levels at the moment, given the slowing nature of the US economy.
The ABS said that the Export Price Index decreased by 3.0% in the September quarter 2007, the first quarterly decrease since March quarter 2005. Remember that the cost of imports as measured by the Import Index fell 0.8% in the quarter, so our terms of trade worsened noticeably in the three months (on the surface).
The ABS said "the decrease this quarter was driven by price falls in metalliferous ores and metal scrap (-7.2%), non-ferrous metals (-12.5%) and coal, coke and briquettes (-2.8%).
"These decreases were partly offset by increases in prices received for petroleum, petroleum products and related materials (+9.4%) and cereals and cereal preparations (+3.4%).
"Through the year to September quarter 2007, the Export Price Index decreased 2.5%." But remember import costs fell 5.5% in the year to September, so the impact over the year isn't as noticeable. But there was a squeezing.
Now iron ore, coking and thermal coal prices are widely expected to rise in coming months for 2008, so that will help offset any impact of the higher dollar or lower prices for metals and oil, if oil prices retreat.
But copper stocks in China and at the London Metal Exchange are rising: is this a repeat of late last year? Anyway copper prices are now only 1.2% up so far in 2007.
The decline in export prices in the latest quarter is only a straw at the moment as the
