Normally Producer Price Index increases of 2% in a quarter and 5.6% through the year would be enough to cause the interest bears groaning in anticipation down at the Interest Rate Bar & Café. (That’s just behind the We’ll All Be Rooned Inn that country folk flock to when are times are tough). Those bears have been cooped up for three months or more now without anything to fret about.

So they would have been looking forward with anticipation to the PPI for the September quarter, which was out this morning from the Australian Bureau of Statistics and showing a 2% rise in the final stage of production and 5.6% over the year to September.

That’s actually significantly less than PPI readings in China (10% at last report over the year to August), over 9% and 10% respectively in the US and UK in the year to July and August (but now easing as oil prices and recession ease the pressures).

But it’s worse than expected by the market who were looking at a 1.2% quarterly rise, and double the 1% increase in the June quarter. Higher import costs were blamed, and that’s down to the 30% plunge in the value of the dollar since July.

But bears don’t worry about international comparisons, they like a good domestic fret. But even there they are facing disappointment because inflation is no longer the big issue: it’s growth, or rather, the growing fear that there might not be much of it around this quarter and especially in 2009.

Actually the bad news bears on interest rates have morphed into the unemployment gurus, confidently forecasting a slump in our jobless numbers, or rather a rise in the number of jobless and unemployment to over 6%. The remaining rate bears reckon the PPI and CPI increases will mean we won’t get big rate cuts next month and in December.

No one knows, but the RBA does seem to be more concerned about growth evaporating than prices rising. After all, the central bank has been telling anyone who would listen the annual rate in this quarter (and possibly in the December quarter) will be high at around 5%.

Concern about unemployment is also an interpretation that more forward looking economists took from the Reserve Bank’s 1% cut in its cash rate almost a month ago: economists like those at Goldman Sachs JBWere who reckon we are in an recession now, or close to it.

Actually economic activity might be falling into negative territory, but we are not in a recession yet. Not in 2008 because growth earlier in the year will give us a positive number for the full year, and we have to endure two successive quarters of negative growth for a recession to be officially declared (by the accepted American measures). America is falling into recession, but is not there (second quarter growth was an annual ate of 2.8%!). The US had negative growth in the December of last year.

We are now “enjoying” sub-trend growth (i.e. a level of growth below the long term performance of the economy: about 3% a year growth in GDP, give or rate a point or three).

Wednesday sees the release of the consumer inflation figures for the September quarter. While those PPI increases don’t feed all that cleanly into the CPI, they can be an indication.

In fact the level of growth in prices fell from the preliminary to the final stage of production by a quite noticeable amount (the quarterly increase at the preliminary level was 5.5% for the quarter, it was 3.7% at the intermediate stage and 2% at the final stage. Likewise the annual figure was up 13.3% at the preliminary stage (with oil and fuel costs a major reason), 9.7% at the preliminary stage and 5.6% at the final stage.

That’s usually indicative of companies absorbing the price pressures in slimmer margins or cost cutting, such as cutting labour. So far jobs losses have been scattered, not economy wide, so companies are eating the price pressures by cutting their profit margins where they can or have to.

The CPI for September quarter looks like coming in by around 0.9% to 1.2% and the full year figure by 4.9% to perhaps 5.2% but the Reserve Bank’s own measures look like remaining unchanged at around 4.4%. The CPI was 4.5% on a headline basis in the June quarter.

Normally, that would be enough to get the bears off the honey and chanting ‘rate rise looms”. But these are very different days. It’s all about rate cuts, as we will find tomorrow from the minutes of the October 7 RBA board meeting which produced the 1% cut (the largest since May, 1992) and then a speech a couple of hours later from RBA Governor, Glenn Stevens in Sydney.

Bears wearing parachutes do not look cool, but we may need as many as we can get if the forecasts of a recession and possibly hard landing turn out to be true next year.