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1ACEEconomicsLecture8:Australia’sinflationasacontemporaryeconomicissue1TrinityCollegeFoundationStudies
mendedreadingRichardMorris.,‘EconomicsDownUnder’,VCEEconomics,Units1and2,9thEdition,Jacaranda.Chapter3
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LectureOutlineDefinitionofinflationMeasurementofinflationConsumerPriceIndexInflationtrendsinAustraliaFactorsaffectingAustralia’sinflationrate3
DefinitionofinflationInflationreferstoariseinthegenerallevelofpricespaidforgoodsandservicesoveraperiodoftime(usuallybetweenoneyearandthenext).Wedonottalkofinflationsimplybecausethepriceofoneparticularthing,likeicecreams,goesup.Instead,itdescribesasituationwherepricerisesforawiderangeofgoodsandservicesoutweighpricefalls.4
DefinitionofinflationHyperinflationisanextremesituationwherepricesriseveryquickly,perhapsbymorethan50percentamonth.Bycontrast,deflationisatermdescribinggenerallyfallingprices.5
HyperinflationZimbabweIn2008themonthlyinflationratehit3.5millionpercentwithaneggcosting50billionZimbabweandollars.Aloafofbreadthencostasmuchas12newcarscouldhavecost10yearsbefore.Pricesdoubledevery25hours,whichgaveZimbabwethesecond-worsthyperinflationinhistory,behindpost-warHungary.Thesameyear,Zimbabweprinteditshighestdenominationbanknote,at100trilliondollarsitwasonlyenoughtobuyaweeklybusticket.6
Deflation–GoodorBad?Lowinflationhasbeenablessingforconsumers,withafewthingsgettingmoreexpensivebutmanythingsgettingcheaper.Thisimprovesthestandardofliving.Butwhenthepriceofeverythingfalls.Itsadisaster.Fallingpricesmeanslowerrevenueandprofitmarginsforcompanies,whichasweknowleadstolayoffs,lesshiring,stagnantwages,andpaycuts.Consumerswithlowereshavelessmoneytospend,whichtendstolockthecycleinplace:Withsalesdown,firmshavetocutpricesevenmoret
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