Economic Indicators and Past Budget Stances (Unit 4 Topic 2)  

Inflation: Tracking the Cost of Living

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Inflation measures the rate at which the general price level rises over time, eroding the purchasing power of money. In Australia it is captured by the Consumer Price Index (CPI), which tracks the cost of a representative basket of goods and services.

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The headline CPI includes every item in that basket — but this makes it volatile, as one-off swings in prices like fuel or fresh food can distort the underlying trend.

 

To see through this noise, economists use the trimmed mean, which removes the most extreme price movements each quarter to reveal the persistent, broad-based rate of inflation. This is the Reserve Bank's preferred measure, because it better reflects the sustained inflationary pressure that monetary policy is designed to manage — and it is what guides the RBA's decisions on interest rates.

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Use the interactive to trace both measures since 1999, and switch on the RBA target band to see when inflation has sat within the 2–3% goal.