This latest economic bogyman reared its ugly head last Wednesday after the release of official prices data.

It is true that an index of most commonly purchased consumer items fell by 0.2 per cent in the first three months of the year. The prices of some things, like health and education, rose. But, on average, prices fell.

But one quarter does not deflation make. 

Despite the end of our biggest mining boom in history, our economy grew a solid three per cent last year, only a bit below average. 

And our jobless rate is falling, albeit wages growth remains elusive.

Looked at over the year, prices are still rising, by 1.3 per cent. When you strip out more volatile items, key measures of core inflation rose by an average of 1.55 per cent.

What we are seeing is not deflation, but a slowing in the pace of prices growth. The technical term for that is "disinflation". 

Globally, interest rates policy has become a race to the bottom as economies have struggled in the post-GFC world. 

A race to drop one's pants is not one a respectable central bank would wish to win.

And so far, Australia's central bank has remained as a beacon of modesty in a world of unconventional monetary policy.

For decades now, Australia has consistently sported interest rates higher than the rest of the world.

Why? On a fundamental level, higher interest rates reflect the potential to earn a higher rate of return on money here.

We're a developed nation, open to foreign investment (for all the noise), with a stable democracy (for all the noise) and a wealthy and relatively well-educated population.

Our higher interest rates have, however, put us in an uncomfortable position of late. Investors looking to park their money have been buying up Australian assets, using Australian dollars, and this has pushed up our currency.

Some argue the Reserve Bank should cut interest rates in an attempt to reduce the value of the dollar and revive prospects for inbound tourism and education services.

But cutting our cash rate even by a full half percentage point, to 1.5 per cent, would still leave us sticking out like a sore thumb in a world of zero or sub-zero borrowing rates.

The Reserve Bank has so far held off joining this race to the bottom. To join it now, so late after the starting gun was fired, would be concerning indeed.

The Reserve board may decide to lend some more marginal support to the economy by pulling the trigger at its monthly meeting tomorrow after keeping rates on ice at record lows for the past year.

Or it may decide to stick to its guns and the belief that high borrowing costs are not the thing holding the Australian economy back.

A lack of business confidence, the excessive returns to rent-seeking above other more productive investments, tax incentives which divert investment towards non-productive sectors, like property speculation, and under-investment in skills remain the real impediments to stronger growth in the Australian economy.

And those problems can only be solved in the budget lockup, not at the Reserve's board meeting in Martin Place.

Indeed, if a rate cut fuelled a sense of uncertainty and fear over the economic outlook, dropping rates may do more harm than good.