Unless there's a rise in unemployment and a definite slowing in domestic economic activity from the current 5% a year plus growth in non-farm domestic product, further rate hikes will almost certainly be delivered by the Reserve Bank next year.

And the only way to avoid a series of rate hikes is for the incoming government to prune its spending programs to reduce further over-stimulating the economy.

This will be the immediate priority for the new government after November 24. Standby for a lot of 'non-core promises' to emerge and if the ALP wins, for a budget black hole or three to be discovered.

Both sides have promised over $40 billion in tax cuts and spending packages: probably upwards of $50 billion each, taking the figures at face value and assuming no double counting.

That's over the next four years or so but would on top of the strong level of demand coming from the resurgence in business investment which remains the biggest positive we have going at the moment. At least the surging domestic demand is not coming from a housing bubble or a consumption binge by households.

It's not that the economy is going to hell in a hand basket, far from it.

Its just that we are growing too fast for our own good and that too much coal is being shovelled onto the fire by way of record terms of trade, solid wages growth, tight employment conditions, tax cuts from the last budget and the positive impact of the higher Australian dollar which is encouraging demand for consumer goods (imports) through price cutting.

The Australian economy is now 17 years into the current expansion and the RBA feels now it needs to tighten the throttle significantly: the bank now feels it should have tightened back in April but was fooled by two quarters of understated prices growth which are now well and truly out of the equation.

Whoever wins the November 24 election will face a straitjacket of up to two years of tight rates and not much leeway for going mad with the spending proposals, even though both have those billions in tax cuts and spending ideas factored into their campaign pledges.

So there’s every chance the rise in the cash rate to 6.75% won't be the last the way the RBA worded its statement.

That will be good for the dollar, importers, retailers like Harvey Norman and JB Hi-Fi, as well as helping Coles, Woolies and other groups expand their range of imported own brands, which will add to profit margins.

The shares of Woolies, Coles and Wesfarmers rose yesterday after the Coles shareholders voted for the WES merger, but there was also a bit of interest rate-driven defensive buying: people have to eat when rates go up, but they might not go out so much or buy a new car.

HVN and JB Hi Fi shares also rose because the Aussie dollar climbed well above 93 US cents.

Travel groups, such as Flight Centre are riding the boom, as are the few listed car dealers; any car company with a long list of imported brands should benefit handsomely.

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