When inflation took off in 2021 the Reserve Bank knew it had a major project on its hands to get it back down to the 2 to 3 per cent target range. Its ultimate aim, several years later, would be to achieve an economic “soft landing”. That now looks likely.

Inflation occurs when an economy runs too fast with consumer demand for goods and services well ahead of their supply, allowing their prices to rise. The RBA must raise the cost of borrowing so consumer demand and business activity slow, allowing prices to fall.

If the RBA doesn’t increase rates enough it won’t control inflation. It must also be very careful not to raise them too far and cause a severe slowdown and recession. The small safe area between those two big dangers is referred to by economists as a soft landing.

The latest CPI for the December Quarter showed inflation continuing to decline, confirming the trend of previous Quarters. It is now at 4.1 per cent, only 1.1 per cent above the target range.

A recession looks unlikely. While retail sales growth has slowed, to 2.3 per cent in 2023, sales haven’t collapsed. Share market listed retailers JB HiFi, Nick Scali and Cettire last week all reported much better than expected recent sales.

The current weakness in the Chinese economy should help reduce inflation here. China’s factories are running below capacity so the prices they charge should decline, reducing the cost of the goods we import.

Politicians may order investigations into grocery and fuel prices but price gouging and excessive profits are unlikely to be a major cause of inflation. Some small price reductions may be possible but they aren’t likely to reduce inflation greatly.

The major wharf operators that handle most of our imports and exports have just raised their prices for handling cargo sharply, due to big pay increases they were forced to agree to by the waterfront union. That will add to inflation.

Governments also contribute to inflation by spending more than they collect in taxes and mineral royalties. Deficit spending must be reined in.

One problem that will become more obvious is weak productivity, output per worker. It has declined since the spread of working-from-home. Figures show people working at home are not as productive.

The new industrial laws passed by Parliament last week will reduce workplace flexibility and productivity. Weak productivity plus wage rises give workers more to spend for doing less. That must add to inflation.

Artificial intelligence software is one positive influence. It will improve the productivity of workers in many ways yet to be determined.