Inflation is the sustained increase in the general price level in an economy. Since the mid 1990's the Australian Government has placed high priority on controlling inflation due to the negative impact it can have on our economy. It uses monetary policy, fiscal policy and microeconomic reforms to control inflation and achieve non-inflationary sustainable economic growth and low unemployment. Inflation is a restraint towards economic growth and can instil uncertainty in economic agents' view about economic conditions, which heightens inflationary expectations. It also distorts the pattern of allocation of resources by directing funds into speculative and unproductive investment (e.g. real estate) Our international competitiveness can also be eroded by high inflation as our higher priced products become less appealing to overseas buyers.
In Australia, inflation is measured quarterly using the consumer price index (CPI). This is simply a measurement of the change in the price level for a regimen of goods which are sensitive to consumption patterns. …
