Inflation with in Australia and Its Result on Australian Economy
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Inflation Essay – Yr 11 economics
Causes and Consequences of Inflation
Inflation is a sustained rise in the general level of prices in an economy. Several measurements of inflation are available but the most widely used measurement in Australia is the Consumer Price Index (CPI), which measures the percentage change in the prices of selected consumer goods and services over time and therefore reflects changes in the cost of living.
The rate of change in the CPI is known as the headline rate of inflation since it covers the movement in the prices of a basket of goods and services weighted according to their significance in the average Australian household.
Some problems in the interpretation of the CPI include the volatility of some prices due to seasonal conditions (such as food prices), and the change in the weightings given to various categories of spending over time due to changes in consumer spending behaviour.
The CPI for the March quarter 2003 showed a rise in the general level of prices of 1.3%, bringing the annual rate of inflation to 3.4%. Hence, the inflation rate has moved outside the RBA target range of 2% - 3%.
Additional measures of inflation are also used to assess the degree of price pressures in the economy. One such measure is the underlying rate of inflation, which is a calculation of inflation that removes one off seasonal factors such as higher food prices due to drought or government induced interest rate rises. It is a better indicator of trend inflation in the economy than headline inflation and is calculated by Treasury and used in economic forecasting. The Treasury forecasted inflation rate for 2003-04 is 2.75%.
The Australian Bureau of Statistics has also recently developed new measurements of inflation. The Price Index of Domestic Final Purchases analyses price changes on the demand side of the economy, which the Stage of Production Index analyses price changes on the supply side.
The Causes of Inflation
Demand-pull Inflation...
Causes and Consequences of Inflation
Inflation is a sustained rise in the general level of prices in an economy. Several measurements of inflation are available but the most widely used measurement in Australia is the Consumer Price Index (CPI), which measures the percentage change in the prices of selected consumer goods and services over time and therefore reflects changes in the cost of living.
The rate of change in the CPI is known as the headline rate of inflation since it covers the movement in the prices of a basket of goods and services weighted according to their significance in the average Australian household.
Some problems in the interpretation of the CPI include the volatility of some prices due to seasonal conditions (such as food prices), and the change in the weightings given to various categories of spending over time due to changes in consumer spending behaviour.
The CPI for the March quarter 2003 showed a rise in the general level of prices of 1.3%, bringing the annual rate of inflation to 3.4%. Hence, the inflation rate has moved outside the RBA target range of 2% - 3%.
Additional measures of inflation are also used to assess the degree of price pressures in the economy. One such measure is the underlying rate of inflation, which is a calculation of inflation that removes one off seasonal factors such as higher food prices due to drought or government induced interest rate rises. It is a better indicator of trend inflation in the economy than headline inflation and is calculated by Treasury and used in economic forecasting. The Treasury forecasted inflation rate for 2003-04 is 2.75%.
The Australian Bureau of Statistics has also recently developed new measurements of inflation. The Price Index of Domestic Final Purchases analyses price changes on the demand side of the economy, which the Stage of Production Index analyses price changes on the supply side.
The Causes of Inflation
Demand-pull Inflation...