Interest rates may rise and fall, employment may jump, or slide and the economy will slow, then pick up, but for the Reserve Bank something has changed.
"The rise of China is not a flash in the pan" is how RBA Governor, Glenn Stevens termed it in a speech to Federal Treasury last week.
That’s the focal point for a set of changes that we are now experiencing that will change us forever.
That’s something to keep in mind as we wonder about interest rates, housing affordability, debt, world financial stability, jobs, retail sales and the myriad other day to business and economic ‘things’ that sometimes trouble, delight or frustrate us.
It’s clear from his comments in the speech, and the tone of recent statements from the bank on inflation and growth, that it now believes that higher levels of inflation, higher prices for products such as oil and higher national income, are going to be a part of the Australian economic landscape for some time to come. And that means they will be part of politics and part of business and everyday life.
It is also clear that we can forget interest rates around 4% to 5% for the foreseeable future (they will only happen if the economy slumps badly off the back of a slump in China) and we can expect oil prices to continue around their current levels for some time to come.
Mr Stevens said higher demand from Asia is driving price growth and "Higher Chinese demand is not going to go away. So we have to adjust to higher energy prices".
That may be unpalatable for some like motorists and their lobbyists, but it does offer us an opportunity to plan our adjustment to more efficient vehicles, such as hybrids and small diesel powered cars. But not biofuels: that’s driving food prices higher around the world, including Australia.
But it is clear from his speech that Mr Stevens and the RBA believe we are firmly coupled to China for a long time to come and there are going to be a lot of adjustments to be made to accommodate the strains (and benefits) that closeness will bring.
"We have been living through one of the largest transformations in the structure of the global economy, as far as Australia is concerned, for a century," Mr Stevens said in his speech.
"The rise in the terms of trade over the past five years is the biggest such event since the Korean War boom in the early 1950s.
"But while the Korean War event was a temporary one, all the indications are that the rise of China is not just a cyclical event, but a structural change of the first order.
"China certainly has a business cycle, like all other economies, and will slow at some point.
"Even so, it is highly likely that, short of some catastrophic event, China has many years of strong growth still ahead. It will not be at the 11 per cent per annum pace of the past couple of years, and there will be periods of weakness and instability.
"But the rise of China is not a flash in the pan of economic history.
"In essence, we are seeing a very large change in relative prices in the world economy, and a relative price change that is more important to Australia, in particular, than to almost any other country.
"These sorts of events will always produce stresses and strains, including significant divergences in performance across industries and regions (though these are often exaggerated in popular discussion).
"Because the event is, overall, very expansionary, it was always likely to be associated with some risk of higher inflation."
"Looking across the economy more generally, we can all see that the main external event of recent years is the rise in the terms of trade, which is obviously completely exogenous as far as Australia is concerned.
"But higher resource prices generate additional income, which then affects demand for goods and services at home.
"That is expansionary, and puts pressure on prices for non traded goods and services.
"Even though monetary policy cannot stop the initial shock – of course we cannot stop the Chinese demand for resources – we can, and should, seek to condition the economy’s subsequent response to that shock, rather than simply letting domestic overheating go unchecked.
"Tighter policy will dampen domestic demand and contain the pick up in non traded prices as well as raising the exchange rate, which makes imports cheaper, exports less competitive and fosters a move of productive resources into the parts of the economy where more production is needed.
"That is an appropriate form of adjustment to such a shock, particularly if the shock is likely to be fairly persistent.
"But given the magnitude of the shock, when all is said and done, the economy has coped pretty well so far.
"Yes, inflation has risen. This is a problem, and requires a suitable response from monetary policy.
"But compare the outcomes on this occasion with those in the commodity price booms of the early 1950s or the mid 1970s.
"In the early 1950s, CPI inflation reached 25 per cent, then fell back to zero within a few years, associated with quite a pronounced recession.
"In the mid 1970s, inflation reached about 18 per cent, and took a very long time to come down to acceptable levels. This time, we are grappling with a peak CPI inflation rate that looks like it will be around 4 per cent in CPI terms, and trying to assess how soon it can reasonably return to 2 3 per cent.
"This is a far cry from the problems of yesteryear.
"The reason we are doing better this time around is not hard to fathom, either: a flexible exchange rate, a reformed and flexible industrial environment, better private sector management and much stronger fiscal and monetary policy frameworks have made a lot of diffe
