Inflation And the Australian Economy
Inflation And the Australian Economy
Inflation is one of the most important features of the Australian Economy. It is basically the measure of how much prices rise each year. The most common and widely acceptable unit for measuring inflation is the Consumer Price Index (CPI). During 2000-2002, there have been many factors contributing to inflation, especially in the March Quarter of 2002. Generally in most cases, governments try to maintain low inflation levels to stabilise the economy.
Inflation is the loss in purchasing power of a currency unit such as the dollar, usually expressed as a general rise in the prices of goods and services. A classic example is the Great Inflation of the Roman Empire. Successive emperors replaced a steadily increasing fraction of the silver in their ancient currency, the denarius, with base metals like bronze or copper. As a result prices rose inexorably despite repeated attempts to restrain them through legislation. Diocletian, rather than taking responsibility for the debasement, attributed the rapid inflation of his day to the avarice of his subjects. His famous edict of AD 301 threatened with death any vendor who charged prices exceeding official limits. But inflation ran along unhindered for another century until an alternative currency, an undepreciated gold coin known to Shakespeare as the bezant, became the customary unit of account, spreading throughout Europe and lasting well into the Middle Ages.
We have many measures of inflation, but none provides a truly reliable gauge of inflation at any specific time. The most widely watched measure is the consumer price index (CPI). Sub indexes are available for different cities and for many different classes of goods and services. One problem with the CPI is that the weight attached to each class of goods and services is held constant for years at a time. Therefore, when consumers lower their cost of living by buying more items whose relative price has fallen and fewer items whose relative price has risen, the CPI will not show a decline in the cost of living. Moreover, the difficult problem of allowing for changing quality has never been solved. Nor can the government inspectors who collect the data from retailers track down all the sales and discounts of which consumers are so keenly aware. As a result of these and other factors, the consumer price index reflects inflation trends only with a long delay and portrays an...