There were two big pieces of economic news in the past fortnight – fresh unemployment numbers and inflation figures.

We have a game in the TDA office when economic news is on its way, called ‘make Tom guess what it’s going to be’. This week, my prediction was that the news would be ‘good-ish’, which is more or less how it turned out.

The ambiguity of ‘good-ish’ points to something I’ve found difficult when reporting on the economy over the last couple of years. When so much of it is bad, how do we process news that is mildly good?

This week, I try to place the ‘good-ish’ in the context of the bad, for a more balanced picture of how our situation is changing.

It’s the economic story you might be tired of hearing. Inflation is on the rise. The RBA has responded by raising interest rates. Mortgages are up. Rents are up. Power bills are up. A recession could be around the corner. This grim story, or some version of it, has been with us for 18 months.

But now, it may be starting to shift.

Earlier this week, we got the strongest sign yet that inflation is easing. It came fresh off the back of news that, despite warnings of job losses, unemployment remains at a half-century low. This is a rare thing in economics, at least of late: genuinely good news.

It’s not all good, of course – the situation for renters remains dire and there are other reasons for concern. But for once, it isn’t all bad. Eighteen months into our tangle with inflation, are we starting to see light at the end of the tunnel? Here’s a closer look.

It’s important to explain why that combination of falling inflation and low unemployment is both surprising and welcome.

Put simply, it’s because all of our options to fight inflation, one way or another, carry the risk of inflicting job losses. We face a trade-off between the pain of inflation on the one hand and the pain of economic contraction on the other.

Why? Because inflation is essentially an ‘overheating’ problem – ‘too much’ money chasing around ‘too few’ goods, resulting in rising prices. It makes little difference where the problem began – global shortages, greedy businesses, take your pick – once we find ourselves overheated, our only remedy is cooling down. Whether we do this by raising interest rates, raising taxes or some combination of the two – ‘cooling off’ risks job losses.

In other words, we face a trade-off: between the pain of inflation on the one hand and the pain of higher unemployment on the other. There is significant debate about which pain is worse, and whether we tend to be too worried about inflation and not worried enough about unemployment.

In that context, the fact that unemployment remains extremely low while inflation is starting to fall is unambiguously a good thing.

Why is it happening? There are a few reasons. One is that we entered this inflation period in good economic health. Not only has unemployment been extremely low, but businesses have been desperate to hire even more workers than they can find. This means we have a lot of headroom to cool down the economy before jobs start to go.

But there’s another reason: the RBA is deliberately moving slowly on inflation to save high unemployment. That probably sounds surprising. The RBA, going slow? Haven’t they been raising rates almost constantly for more than a year? They have, but not as fast or as much as they could have, or in fact as fast as some other central banks around the world have gone.

As RBA Governor Philip Lowe put it recently, the RBA is aiming to get back to inflation in mid-2025, two years away. The reason for moving so slowly is to “preserve” as much of the low unemployment rate as possible.

The RBA expects that will mean an unemployment rate of 4.5% – higher than where we are now (over 100,000 more people), but still fairly low by historical standards. The RBA calls this a ‘soft landing’, and so far things are panning out according to its projections.

The debate will continue about whether the RBA has the balance right – for example, should it settle for slightly higher inflation and keep unemployment below 4%? But none of these options are as disastrous as where we have been before in fights against inflation. The last time we battled inflation, Australia ended up in a serious recession in the 1990s, with unemployment at almost 11%. That would mean millions more people out of work than are there today. Any news that suggests the RBA might secure its ‘soft landing’ this time is good news.

However, it may not all be smooth sailing from here. Some bubbling concerns could knock us off our path.

For one thing, there’s the rental crisis, which is unlikely to end any time soon. Rents rose at the fastest rate since 1988 in the last three months, due largely to the severe shortage of rental properties. There is little the RBA can do about that, and its causes are quite distinct from the rest of the inflation story. Instead, pressure is likely to mount on state and territory governments to build more houses urgently and consider capping rents.

But elsewhere on the inflation front, there’s another problem: while some are doing it tough, others just keep spending. ‘Discretionary’ prices – a category that includes travel, recreation, meals out and retail – are rising faster now than they were a year ago.

This sort of persistent spending could be a sign inflation will hang around. And interest rates alone may not be enough to solve the problem, since much of the spending comes from wealthier people with no mortgages, who are largely unaffected by higher rates and who have continued to spend strongly.

We remain on a tightrope, even as we get closer to the ground.