Inflation Research Paper
The Nature and Extent 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%. Read more…
