The pressure is off interest rates and the Reserve Bank can take a bow for getting its inflation forecast right.

Its forecast for inflation in the June quarter, published in last week's Minutes of the July board meeting, was spot on

"Consumer price inflation data for the June quarter would be published on 28 July, and the staff expected them to show the underlying rate of inflation continuing to moderate in year-ended terms, to be below 3 per cent for the first time in three years.

"CPI inflation was, however, expected to rise to a little above 3 per cent, partly due to the effects of higher taxes on tobacco."

And so it was with the quarterly rate rising 0.6% (down from 0.9% in the March quarter) for an annual rate of 3.1%, up from the 2.9% in the three months to March.

But as the RBA predicted inflation did moderate in the June quarter, as shown by the Reserve Bank's measures of underlying price pressures.

The yearly rate fell to 2.7% for both the Weighted Median and the Trimmed Mean, down from the average of both of 3.05% in the March quarter.

And the quarterly increase eased to 0.5% for both the Weighted Median and the Trimmed Mean, from the 0.8% rate in the March quarter.

Here's where you can find the RBA's measures of inflation going back several years.

Retailers have reported a softening in demand in the June quarter (actually it started in the month of March) and now its clear there was also a softening in price pressures, all the hallmark of a downturn in the level of activity in the economy as a whole.

And it also means no rate rise next Tuesday from the RBA, a view held by economists including Macquarie Bank's Rory Robertson.

"There will be no interest rate hike next week.

"The RBA will remain on hold for at least the next three months and probably into 2011."

"If you were thinking the RBA might make this Federal election campaign interesting, think again," he said.

But there were other issues in the RBA's thinking, as expressed in the Minutes of the July board meeting.

It specified offshore developments, such as Europe's woes, China and the US economy.

Europe seems to be doing well, with the better than expected results from the stress tests on 91 major European banks, while the flow of economic data has been healthier than expected.

China seems to be slowing gently to a more sustainable rate of growth (See next story).

Only the US economy seems to be slowly sliding towards a lurch downwards in activity later this year.

But local inflation was the major test, as the RBA explained in the minutes.

"Headline inflation was expected to rise, owing to the effects of some tax increases, with the year-ended increase in the CPI rising above 3 per cent.

"The important question for the Board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation."

On that basis domestic inflation has slowed appreciably in the June quarter, thereby taking a lot of the pressure off the central bank to lift rates in an election campaign.

The ABS said that the "most significant price rises this quarter were for tobacco (+15.4%), hospital and medical services (+3.8%), automotive fuel (+2.1%), rents (+1.1%) and house purchase (+0.6%).

"The most significant offsetting price falls were for domestic holiday travel and accommodation (-6.0%), fruit (-4.8%), audio, visual and computing equipment (-6.3%), vegetables (-3.0%), and overseas holiday travel and accommodation (-1.9%)."

And the most important bit of analysis you can do is to look at the impact of price rises on the tradeable and non tradeables components of the CPI.

"The tradeables component of the All groups CPI rose 1.0% in the June quarter 2010.

"Prices for the goods and services in this component are largely determined on the world market. The tradables component represents approximately 42% of the weight of the CPI.

"The rise in the tradeable goods component was driven by increases in tobacco, automotive fuel, furniture, pets, pet food and supplies. The most significant offsetting falls were in fruit, audio, visual and computing equipment and vegetables. The decrease in the tradable services component of 1.9% was driven by overseas holiday travel and accommodation.

"The non-tradables component of the All groups CPI rose 0.3% in the June quarter 2010.

"Prices for the goods and services in this component are largely determined by domestic price pressures.

"The non-tradables component represents approximately 58% of the CPI.

"The non-tradables goods component rose 0.4% mainly due to price increases for house purchase, beer and gas and other household fuels.

"The most significant offsetting movement was cakes and biscuits and electricity.

"The non-tradable services component rose 0.3%, due to increases in hospital and medical services, rents, other financial services, other recreation activities and motor vehicle repair and servicing.

"The most significant offset was domestic holiday travel and accommodation."

But we must remember that inflationary pressures remain in the economy with higher power and water charges coming this quarter.

The RBA will be watching the terms of trade and low unemployment rate very closely to see if there has to be another rate rise.

The central bank is thinking about 2011.