Inflation in Australia for the Last 5 Years and the Governments Policy

Question: Write an essay on "Inflation in Australia for the last 5 years and the governments policy on inflation". Answer: Introduction Inflation refers to as increase in the general price level for products and services. It is considered as an economic illness of a country that affects the standard of living of the people. Hyperinflation refers to as the situation where the prices increase very quickly and deflation refers to as decrease in the prices(Anderson, n.d.). The consumer prices fall 0.2% in the first quarter of 2016 and it was expected that the consumer prices would increase to 0.3%. The Australian Bureau of Statistics stated that fall in the price for fruit, fuel and international holiday accommodation and travel registered as most significant decrease in the first quarter. The drops were offset partially by increase in the price for hospital and medical services, pharmaceutical products and secondary education. The inflation came down at 1.3 percent in the first quarter and down from 1.7 percent in the fourth quarter that marked as the lowest reading in the last four year (Anon, 2016). The annual inflati on in the first quarter was steady despite of lower inflation at 1.5 percent which shows below the inflation target of the reserve bank of Australia that is 2% to 3%. In 2016, it is expected that the inflation would average 1.6 percent that is unchanged from the forecast of last month. The consumer prices in Australia rose around 1.3% through the year to March quarter of the year 2016 from the 1.7% in previous quarter and it is below market. The consumer prices dropped unexpectedly on a quarterly basis by 0.2% and again it increases up to 0.4 percent in December (ABC News, 2016). The most significant categories in consumer price index of Australia are non alcoholic beverages and food, housing, culture and recreation, transport, household equipment, furnishings, tobacco, alcohol, financial and insurance services and health. Body Inflation is a process that is normally seen in the case of the materials or the attacks which helps in the measurement of the living standards. It helps in determining the standard of living conditions that helps in determining the services of the goods and thus it also helps in the interpretation of the price of the particular things for the creation of the icy poles and hence forth the variation is created for the understanding the term inflation which determines the boom in the economy or the rise of the prices of the products (Bhar and Mallik, 2012). The level of customer prices is a mark-up allover import and domestic costs, Here, addressed such problems of general to particular models, exogeneity, parameter consistency, modeling and dynamic specification. In this context, test this framework against to exists the models of Australian prices; this model also encompasses the existing models. Rate of Australian inflation averaged around 8% in a year. . International comparison of the inflation also helps in the creation of the inflation rates that are required for the collection of the information for the detailed development of the country (Bhar and Mallik, 2012). The excess in the inflation rates would undermine different aspects of the performance of the economy could weaken the distribution of income, competitiveness in the international market and ultimately hampering the standard of living of the people. The rate of inflation in Australia substantially and also averages moderates 2 % in a year. This way of inflation has also occurred in various changes in Australian economy, incorporates substantial diminishes in traffic, a shift to productivity based procedures and level is created by the factors that are determined for the enhancement of the inflation rates(Dahlsten, 2012).The worst instances that are created in the case of the instances of inflation are as follows:- After the world war 1 of the year 1918-1919, the inflation level seems to increase in the prices of the different products along with the increment of the price of the services. During the war of Korea in the year 1950-1952, the prices of the products are seemed to be increased drastically (Dewatripont, Hansen and Turnovsky, 2003). During the crisis of the global oil, the prices of the oil drastically increased. During the year 1979-1983, the rise of the wages drastically increased thereby other pressures are created (Farrer, 2016). In the year 2000-2001, the introduction of the GST seems to have the increment of the oil prices thereby raised sharply with the felling of the A$(Frank and Bernanke, 2004). Measurement of Inflation The measurement of inflation in Australia is seems to have in the quarter year which determines that the Australian Bureau of Standards explains the calculation of the inflation measurement by the process of the consumer price index or it is commonly known as the CPI index(Gillman, 2009). It helps in the measurement of the prices of the local products and the also helps in the measurement of the imported goods that are represents the high rate of the expenditure with the continuation of the metropolitan households(Hossain, 2014). The consumer prices fall 0.2% in the first quarter of 2016 and it was expected that the consumer prices would increase to 0.3%.The features of the CPI helps in the providing the survey of the goods and the services which includes the categories, related to the food, clothing and the footwear products, housing, household contents and the services, recreation, transportation, financial and the other insurance services(Rajendra and Rajendra, 2002). It also help s us in surveying of the prices which are included for the range of the outlets for the products and the services. It also helps in weighting of the items in the regimen. Also helps in the creation of the comparison of the base years that determines the inflation of the year with conducting the calculation by the process of CPI. Inflation Trends The trends of the inflation help in the creation of the governments that helps in achieving the aims and the objectives of the economic goals for the purpose of the low inflation of the stability of the currency. Thus the currency gains the position of the stability which is seemed in the case of the inflation (Bloomberg.com, 2016). Thus the desirable situation is created where the inflation is slow and the duration of the business cycle is seemed to be rising in nature for the case of the creation of the proper distribution of the income which also helps in defining the various aspects of the economic performance. Hence the excess rates of the business cycle also help in the development of the definition of the international competitiveness which weakens the distribution of the income, undermining the natural competition and the also helps in the erosion of the material living of the standards that are enacted by the ABS(Ryan and Thompson, 2000). Thus the appropriate general trend i s followed for the maintaining the inflation rate that are requisite for the enhancement of the variations of the cycles. It also helps in strengthening the economy of the country with the increment of the inflationary spikes and thus it also responds to the introduction of the GST with depreciating the value of the A$. Global financial crisis is one of the important problems. Rates of interest in the Australia quickly fell in front zero percent (Ryan and Thompson, 2000). Moreover, the public wanted to save their money in a huge amount which they sought to invest. The problems or the issues are that market- since most business and households- a distorted interest rates view as because of existence of zero lesser bound. Conversely, a macroeconomic perspective, the limitation is arbitrary purely but it is not necessary to indicate the contractionary or expansionary monetary policy. In Australia, the nominal rates of interest are required to equate investment and savings is below 0 %. At zero lower bound, insufficiently monetary policy was accommodative to maintain their economic recovery (Scutt, 2016). Australia is not now in that condition but the monetary policy is not proper as most of the economists are expect as accommodative. Thus the moderately low dimensions are also measured by the RBAs for the achievement of the goal for the maintenance of the inflation at the average rate in order to maintain the economy of the Australia. Trend growth of Australia has clear and precisely announced over past decades and steadily neutral cash flows are strictly declined as Reserve Bank of Australia. Most measurements of neutral rate which is a cash rate neither it is contractionery or expansionary stands around 4.5 %(Sloman and Sutcliffe, 2003). The monetary policy is able to take different months of the year before someone even realizes and for this reason a specific macroeconomic problem is occurred. When the authorities of monetary become conscious about the problem or issues they need to act rapidly to inject reserves onto the tools or withdraw the reserves from this. Moreover, it perhaps more or a year before the actions are affects aggregate demand(Szentes, 2002). The delay between arises the problems of a macroeconomic time period and the period at that the policy makers becomes conscious and it is known as recognition lag. Henceforth the growth of the inflation is averagely seen in the case for obtaining the values of the ongoing process that helps in the creation of the financial crisis of the country of Australia. International comparison of the inflation also helps in the creation of the inflation rates that are required for the collection of the information for the detailed development of the country (Witold Jakbik, 2007). Factors that are affect the inflation rate of Australia There are various factors that are considered for the variation in the economy of the Australia and thus both the domestic and the international events are carried out for the enhancements for the proper determination of the affects created on the inflation rate. There are mainly two types of the factors that affect the inflation rates and that are as follows:- Excessively strong demand side conditions cause the demand inflation:- If the influence that are created seems to be very strong in nature, then it helps in the spending chasing of the too few Australian made goods and the services(Ziegelschmidt, 2005). Thus the national spends are seems to be ahead of the production of the goods that are required for the wide spreading the shortages of the products takes place and hence it also helps in the up-liftment of the resources of the firms. Thus it also helps in the increment of the general price rise and thus it leads to the inflation of the demand with the shortage of the goods and thus the boom is created in the situation where the stretching of the economy takes place(ABC News, 2016). The result of this helps in the increment of the greater consumer confidence and thus it results in excess spending of the economy of Australia. The rapid growth of the household services also helps in the creation of the major trading partners that are re lated to the other countries which are the ASIA, NORTH AMERICA and the EUROPE(Bhar and Mallik, 2012). The expansion of the budget takes place with the result of the purchase of the more products and thus it also helps in lowering the interest rates of the inflation. Less favourable demands on the supply side which helps in causing the cost inflation:- If no demand inflation is generated then it leads to the causing of the cost inflation that helps in the decrement of the prices that results in the occurrence of the rising of the costs of the firms of Australia and hence it leads to the enhancement of the growth factors that are related to the protection of the growth margins (Bhar and Mallik, 2012). Hence it also help-s in the determination of the hike of the prices that are related to the growth of the profit margins and thus it results in the inflation of the costs. The common adverse factor that causes the increment of the cost factors are the increment of the wages paid to the workers, reduction in the productivity that enhances the creation of the product of the and also helps in the decrement of the efficiency of the production (Farrer, 2016). It also shows the increment of the government taxes, increment of the price of the price of the l ocally supplied raw materials and the increment of the import taxes on the raw materials. Year mar jun sep dec ann 2015 1.30% 1.50% 1.50% 1.70% 1.50% 2014 2.90% 3% 2.30% 1.70% 2.50% 2013 2.50% 2.40% 2.20% 2.70% 2.50% 2012 1.60% 1.20% 2% 2.20% 1.70% 2011 3.30% 3.50% 3.40% 3% 3.30% Inflation rates for Australia Year mar jun sep dec ann 2016 108.2 2015 106.8 107.5 108 108.4 107.6 2014 105.4 105.9 106.4 106.6 106 2013 102.4 102.8 104 104.8 103.5 2012 99.9 100.4 101.8 102 101 Consumer Price Index for Australia Consumer price index Other consumer price measures Date All groups Excluding volatile items Weighted median Trimmed mean 2012/13 Sep 2 2.4 2.4 2.3 Dec 2.2 2.4 2.4 2.2 Mar 2.5 2.4 2.6 2.3 Jun 2.4 2.6 2.7 2.4 2013/14 Sep 2.2 2.4 2.4 2.4 Dec 2.7 2.6 2.7 2.7 Mar 2.9 2.7 2.7 2.7 Jun 3 2.8 2.7 2.8 2014/15 Sep 2.3 2.1 2.6 2.4 Dec 1.7 2.1 2.3 2.2 Mar 1.3 2.3 2.4 2.3 Jun 1.5 2 2.3 2.2 2015/16 Sep 1.5 2.1 2.1 2.1 Dec 1.7 2.1 1.9 2.1 Mar 1.3 1.7 1.4 1.7 Quarterly percentage change Consumer price index Other consumer price measures All groups Excluding volatile items Weighted median Trimmed mean Date Non-seasonally adjusted Non-seasonally adjusted Based on seasonally adjusted quarterly price changes 2012/13 Sep 1.4 1.3 0.8 0.7 Dec 0.2 0.3 0.6 0.6 Mar 0.4 0.4 0.6 0.5 Jun 0.4 0.6 0.6 0.6 2013/14 Sep 1.2 1.1 0.6 0.7 Dec 0.8 0.6 0.9 0.8 Mar 0.6 0.5 0.6 0.5 Jun 0.5 0.7 0.6 0.7 2014/15 Sep 0.5 0.4 0.5 0.4 Dec 0.2 0.6 0.6 0.6 Mar 0.2 0.7 0.6 0.6 Jun 0.7 0.4 0.4 0.6 2015/16 Sep 0.5 0.5 0.3 0.3 Dec 0.4 0.6 0.4 0.6 Mar 0.2 0.2 0.1 0.2 Measures of Consumer Price Inflation Government Policies of Australia to achieve the goal of Low inflation The government policies of Australia consist of the two types of the policies irrespective of the demand inflation and the cost inflation. The monetary policy is able to take different months of the year before someone even realizes and for this reason a specific macroeconomic problem is occurred (Ali and Anwar, n.d.). When the authorities of monetary become conscious about the problem or issues they need to act rapidly to inject reserves onto the tools or withdraw the reserves from this. Moreover, it perhaps more or a year before the actions are affects aggregate demand. The delay between arises the problems of a macroeconomic time period and the period at that the policy makers becomes conscious and it is known as recognition lag (Coibion, Gorodnichenko and Wieland, 2010). Thus the two types of the policies are determined for the purpose of the creation of the balance in the economy of the country of Australia and thus it also helps in the creation of the government goals that are required for the proper segregation of the economy of Australia and thus the policies that are requisite for the achievement of the goal are as follows:- The aggregate demand policies that are required for the achievement of the government policies and hence it is applied for the controlling of the demand inflation (Ibrar, 2015). The aggregate supply policy helps in the control of the cost inflation and thus it also helps in the enhancement of the annual average for the control of the cost policies (Lafleche, n.d.). The monetary policy mostly favoured by the current status of the government had lead the nation to teach the current spending as well as buying another countries debt, to allow them to maintain and control the inflation and also increase the savings of the country. Monetary policy always refers to the consideration of the credit control adopted by the countrys central bank. Conclusion The key economic aim of the government of Australia is to achieve low inflation rate. The reserve bank Australia states that it is a situation where the rate of inflation is low and prices of the products and services are rising by an average of around 2 to 3 percent over the duration of business cycle. The excess in the rates would undermine different aspects of the performance of the economy could weaken the distribution of income, competitiveness in the international market and ultimately hampering the standard of living of the people. The monetarists compete against the monetary policy and accounting policy possesses bigger flexibility and it also needed to be implemented quickly. The instruments of the monetary policy can help the government to cope with inflation and policies are of two kinds first, indirect or general and quantitative; and second option is direct or selective and qualitative. They affect the aggregate level demand through the money supply, credit availability, and cost of money. Of the two kinds of instruments incorporates modifying reserve requirements, variations of bank rates and open market operations. They regulate the entire credit levels through such commercial banks in the economy. Businessman is mostly encouraged to lending more. Investment in this scenario also encouraged. Demand, output, income, employment start rising and also the downward rotation of prices is checked. References ABC News. (2016).Australia joining low inflation world. Anderson, K. (n.d.). Australia in the International Economy.SSRN Electronic Journal. Bhar, R. and Mallik, G. (2012). Inflation, Inflation Uncertainty and Macroeconomic Performance in Australia.Economic Analysis and Policy, 42(3), pp.305-318. Bhar, R. and Mallik, G. (2012). Inflation, Inflation Uncertainty and Macroeconomic Performance in Australia.Economic Analysis and Policy, 42(3), pp.305-318. Bloomberg.com. (2016).Reserve Bank of Australia Cuts Core Inflation Forecast to 1-2%. Dahlsten, U. (2012). World market governance.Complexity Economics, 1(1), pp.61-90. Dewatripont, M., Hansen, L. and Turnovsky, S. (2003).Advances in economics and econometrics. Cambridge, U.K.: Cambridge University Press.