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Inflation can be described as the sustained increase in the general level of prices over a given period of time, usually one year. Inflation can have negative effects on many of the key economic outcomes such as economic growth, exports, international competitiveness and income inequality. Inflation is measured in Australia by the Consumer Price Index (CPI); the CPI outlines the movement in the prices of a basket of goods and services that are weighted according to their importance for the average Australian household. The annual rate of inflation is measured by the percentage change in the CPI over a period of a year, highlighted in Figure 3.1 .
Recent Trends in Inflation
Australia’s most significant macroeconomic achievement of recent years is the sustained decline in inflation rates from the early 1990s. After two decades of high inflation Australia reduced its inflation rate and managed to maintain its lowest level of inflation since the 1960s, indicated by Figure 3.2 . The year of 1993 marked a significant change in Australia’s approach to inflation with the implementa…
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