The Australian Government’s Implementation of the Economic Stimulus Plan

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Inflation can be described as the sustained increase in the general level of prices over a given period of time, usually one year. Inflation can have negative effects on many of the key economic outcomes such as economic growth, exports, international competitiveness and income inequality. Inflation is measured in Australia by the Consumer Price Index (CPI); the CPI outlines the movement in the prices of a basket of goods and services that are weighted according to their importance for the average Australian household. The annual rate of inflation is measured by the percentage change in the CPI over a period of a year, highlighted in Figure 3.1 . Recent Trends in Inflation Australia’s most significant macroeconomic achievement of recent years is the sustained decline in inflation rates from the early 1990s. After two decades of high inflation Australia reduced its inflation rate and managed to maintain its lowest level of inflation since the 1960s, indicated by Figure 3.2 . The year of 1993 marked a significant change in Australia’s approach to inflation with the implementation of an inflation target average of 2-3% over the course of the business cycle as a guide to determine interest rate decisions. This inflation target was formalised in 1996 through an agreement between the Treasurer, Peter Costello, and the Reserve Bank of Australia’s Governor. Since its application, inflation has stayed within this target band, with exception of the introduction of the Goods and Services Tax (GST) in 2000. Both headline and underlying inflation have averaged 2.7% between 1996-2009. Inflationary pressures peaked between 2005 and 2008, with underlying inflation spiking at 4.7% due to a combination of higher global prices and the stre... ... middle of paper ... ... News Limited 2009, ‘Rudd stimulus package protected jobs: OECD’. Retrieved May 23rd, 2010, from - http://www.news.com.au/business/rudd-stimulus-package-protected-jobs-oecd/story-e6frfm1i-1225775501075 Tim riley book Riley, T. (n.d.). Year 12 Economics 2010 (pp. 164-216). Wayne Swan 2009, ‘Budget Speech 2009-10’, Australian Government. Retrieved May 20th, 2010, from - http://www.ato.gov.au/budget/2009-10/content/speech/html/speech.htm Wayne Swan 2010, ‘Budget Speech 2010-11’ Australian Government. Retrieved May 20th, 2010, from - http://www.budget.gov.au/2010-11/content/speech/html/speech.htm Westpac Institutional Bank May 2010, ‘Westpac Market Insights Australia, New Zealand, G3 & China’. Retrieved June 6th, 2010 from - http://www.westpac.com.au/about-westpac/media/reports/australian-economic-reports/

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