Price Stability

International Comparisons

In the 1990s it was widely recognised that the Australian economy was suffering due to high rates of inflation. At that time, the inflation rate peaked at 8% - well above the goal range at the time and significantly higher than the rates recorded by our major trading partners at the same time. This result severely damaged our international competitiveness, and therefore affected the other goals of the federal government.

As a result, a more direct targeting of inflation was implemented. As Australia became a more international economy it was increasingly important to achieve a rate of inflation which would not discourage international investment, and which would allow our export sector to continue to grow.

International rates of inflation

First, it is very important to note that in this graph we are examining quarterly changes in the consumer price index in each country.

The similarity between the rates of inflation for Australia and the USA is significant, because during this period the Australian economy has maintained a strong rate of growth at the same time. In fact, the US economy is now desperately in need of reform. Unsustainable deficits in both the federal budget and the current account have many international economists concerned. It is through these mechanisms that the US dollar has been held at a relatively high level, and the rate of inflation has been low.

As a result, it is fair to conclude that the Australian inflation rate compares favourably with that of our major trading partners during the last three years. However, external pressures during 2008 created some concerns for the Australian economy. While the commodities boom has helped to ensure that incomes are rising, it is also contributing to the increasing rate of inflation. As prices increase, international buyers are more likely to try and source their commodities from other sellers. Australia's proximity to Asia has been beneficial so far; this country is still seen as the best place to source fuel (such as natural gas and coal) and raw materials (such as iron ore) because the delivery times are relatively short and the costs are minimised.

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