All VCE students need to be aware of the main economic data over the last four years and so it is important to follow the trends in inflation as well as unemployment, growth, the current account and government finances.
The ABC report the latest inflation figures in the article below. It notes that 'core' or 'underlying' inflation is at 2%. It is headline inflation which is at 1.7%. However like many people the ABC ignores the actual RBA target which is 2 -3% on average. It is quite possible that inflation is on target as this is a period of subdued growth during the 'downswing' of the business cycle.
Two things to note from the article.
1. Subdued growth and inflation around where you might expect in this stage of the business cycle means that interest rates are unlikely to move from their record low of 2%. There is no need to stimulate Aggregate Demand (AD), as inflation edging up suggests that AD is reasonably healthy. If it wasn't falling oil and communication prices would have caused the expected lower inflation rate.
2. Inflation can be caused by 'Demand pull' factors or 'Cost push' pressures. However it is measured by aggregating price changes over a range of different sectors. The article shows how some sectors of the economy have seen price rises, others price falls. The 'inflation' figure of 1.7% is a weighted average of the various actual price changes.
Look carefully at the data. Be prepared to follow changes in inflation and what causes it for the rest of the course.
Australia's core inflation rate since January 2013
This article has direct relevance to the VCE course. However inflation is a key macroeconomic indicator which is controlled through monetary policy and so also part of the IB course.
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