Inflation

Inflation:
Australia’s recent inflation rate has been at around 2.3% over the past 10 years.
This is in-line with the 2-3% goal the RBA has set. An inflation target is set to help achieve its goals of price stability and full employment.
This is due to the self fulfilling nature of the RBA set target, as wages and prices are set based on the expected inflation rate.

Target inflation rates in the area of 2-3% have aided Australia’s economic performance in a number of ways. Having a relatively low and stable inflation rate keeps interest rates low, which is an important factor in financial decisions. It also helps keep the Australian market internationally competitive and the AUD strong.

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Inflation remained stable in Australia, both during and after the GFC. There however is a visible increase in the 2008 period to around 5%, but one that was still managed well. This was also due to the self fulfilling nature of the target set by the RBA and slight changes to cash rates throughout the crisis.

The mining boom had a rising effect on Australia’s inflation rate that pushed it to around 3% from 2010-2012 as seen in the graph. This was due to a lower unemployment rate and higher energy prices that came with the boom that brought an upwards pressure on inflation.

Unemployment:
The unemployment rate in australia has gradually increased from 4% in 2008 to 5.3% in 2018, with an average of around
Australia aims to have an unemployment rate of around 4.5-5%. This is considered full employment and is at this point the maximum possible output in the economy is achieved.

Australia’s increasing unemployment rates have been a small but manageable dent in economic performance. Having an unemployment rate above the 5% target means there are unused human resources which means economic output is not at its desired level. Economic output is essential to the macroeconomic performance of a country an is an important factor in optimising performance.

During the GFC, the unemployment rate in Australia increased by around 1.75% percentage, from around 4% to 5.75%. It took longer than usual for the slow down in to be reflected by a rise in the unemployment rate.

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