Economics an der University of New South Wales

• Headline inflation (CPI) 
• Underlying inflation -> Trimmed mean (A), Weighted mean (M) 

It is the inflation rate that includes one-off events that distort the figures. e.g. GST in 2000 

The inflation rate that removes the effects of one-off events that distort the figures. It is less volatile. 

2 - 3 %

The median and calculated by comparing the inflation rate of every item in the CPI and identifying the middle observation.

- If import prices increase, then Australia pays higher prices for goods / services and this flows through the official inflation rate 

- Reduces deflation: → consumers 
have no incentive to spend or 
borrow as deflation means prices 
are decreasing → downturn 
- Allows sustainable economic 

growth

- Contraction in economic growth 
- Loss in purchasing power
- Higher unemployment
- Lower exports
- Wage-price inflationary spiral

- Tightening monetary --> reduce inflation (short-term) --> changing spending and saving patterns

- Structural reforms  --> reduce inflation (long-term) (eg competition policy, tariff reform and labour market policies)

- ^ wage, ^ productivity, ^ aggregate supply which removes inflationary pressures

People able to work and actively seeking work, but unable to find employment

employed + unemployed

A percentage change in the general level of prices