Inflation Is Measured Using The Consumer Price

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Definition: Inflation refers to a sustained increase in the general price level over time as measured by a price index. In Australia inflation is measured using the Consumer Price Index, which summarizes movements in the price of a basket of goods and services, weighted according to their significance for Australian households.

Measurement and Current Statistic
The two most common measures of inflation are the headline rate and the underlying rate. The headline rate of inflation measures the quarterly or annual rate of change in the CPI and can be a misleading indicator due to its inclusion of goods and services whose prices are affected by one-off factors. For this reason economists prefer to analyze underlying or core inflation. This measure removes the effects of volatile price movements and can be calculated using the trimmed mean or weighted median. Australia’s current inflation rate is 1.3%, and is calculated using the following formula:

Inflation Rate (%) = (Current CPI-Previous CPI)/(Previous CPI) x 100/1

Trends and Forecast
Australia’s inflation rate has remained within the RBA’s target band of 2-3% for the past two decades, averaging 2.7% between 1994 and 2014, slightly above the OECD average of 2%. The RBA has achieved price stability through the use of monetary policy to control cost-push and demand-pull pressures. Globalization and reduced protectionism have exposed the Australian economy to increased levels of competition, putting downward
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