inflation 2009 help! (1 Viewer)

[k150764]

I need to do a speech on an inflation article

I went to the RBA site and they had inflation rate as
2.5%

I thought the recession would raise the inflation but i guess it did not
am i right?
is 2.5% good for Australia's economy
i know that RBA tries to keep the inflation rate to 2~3%

If there are no effects of inflation from recession..it's gunna hurt my speech

is 2.5% inflation rate good for our economy right now?

Thank you!

 

[imoO]

Dude the budget came out like a week ago. Read that?

 

[gnrlies]

I need to do a speech on an inflation article

I went to the RBA site and they had inflation rate as
2.5%

I thought the recession would raise the inflation but i guess it did not
am i right?
is 2.5% good for Australia's economy
i know that RBA tries to keep the inflation rate to 2~3%

If there are no effects of inflation from recession..it's gunna hurt my speech

is 2.5% inflation rate good for our economy right now?

Thank you!

A recession will not usually increase inflation unless governments are unable to raise funds through taxation and resort to seigniorage in order to fund government outlays.

Typically however recessions are assosciated with low inflation or possibly even deflation (notable cases include the Great Depression or Japan over the last fifteen years).

The reasons are intuitive. When there is less demand in the economy, prices tend not to increase. If you are a business trying to survive in the current economic environment, the last thing you want to do is increase your prices as you will scare people away! Wage price pressures are also abated during periods of recession as unemployment rises.

2.5% is probably a good level of inflation, however it is forecast to fall below 2% and remain there for some time. The risk in this recession (not so much for Australia, but certaintly other economies such as the US and UK) is actually deflation. With low interest rates, central banks can risk finding themselves in a liquidity trap as interest rates cannot fall below zero. Deflation is dangerous in this situation as traditional policy instruments cannot be used to avoid it. Nonetheless there are other options including expansionary fiscal policy and quantitative easing.

 

[norelle]

is there any budget policy that is about maintaining low inflation?
I suppose the inflation rate now is already low, and is within the RBA's target range, so there are no particular policy need to be carried out?

 

[gnrlies]

is there any budget policy that is about maintaining low inflation?
I suppose the inflation rate now is already low, and is within the RBA's target range, so there are no particular policy need to be carried out?

It depends on the situation.

Inflation is really a macroeconomic issue so it is the fiscal outcome that will have an influence on inflation. Unfortunately because there can only be one outcome, the government cannot achieve multiple objectives at the same time. In a theoretical sense they might have a welfare function that is a function of inflation, unemployment, output etc etc, but it will be a constrained solution (i.e. they will never be able to achieve the optimal for any single variable).

Governments have to put a relative weighting on each policy goal and determine the appropriate policy response. So for the most recent budget the issue has been economic growth and unemployment. but for last year it was inflation.

 

[kickass91]

that 2.5% is headline inflation i suppose, year on year?
headline inflation has certainly slowed down since the GFC morphed into the GEC towards the end of last year.
this is typical of a recession (or "slowdown" as we havent experienced 2 consecutive quarters of negative economic growth).

u need to mention underlying inflation (trimmed median + mean) which the RBA is concerned with, that is still standing strong at 4.25% year on year for the latest quarter.
this restricts the scope of further easing of monetary policy.

also the RBA bases its judgement on its medium term outlook of inflation.
the RBA thinks that inflation is still a risk as it projects the economy to launch a sluggish recovery towards the end of the year