Deflation v disinflation   Why inflation is bad   Goal of low inflation   Why the RBA targets 2-3%   Measurement of inflation    Headline v underlying   Inflationary expectations

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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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The goal of low inflation

One of the government's primary economic goals is that of low inflation, where inflation represents a sustained increase in the general or average price level over time.  The government (via the Reserve Bank of Australia) seeks to keep the inflation rate between 2-3 per cent on average over the course of an economic cycle.

Points to note about the definition:

Over the 17 years since we first articulated the target, the average CPI inflation rate in that period is pretty much exactly 2.5 per cent. So we have been as low as one per cent and as high as five per cent. We have been outside the two to three per cent probably almost half the time, but the average-which is what matters most-is bang on 2½. That is what we are seeking to deliver.    

Glenn Stevens (RBA Governor) to the House of Representatives Standing Committee on Economics (November 2010)

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