INFLATION

The Consumer Price Index (CPI) and the chain price index of Domestic Final Demand (DFD) are two important indicators of inflation in Australia. They measure the general rate at which prices change in Australia. The CPI has been designed as a general measure of price inflation faced by households, while the DFD price index covers final purchases by business and government as well as households.

Between 2001-02 and 2008-09, the rate of annual inflation expressed by the CPI remained relatively low at around 3%. This is broadly in line with Reserve Bank objectives, which stipulate that the desirable medium term CPI rate of inflation should be between 2% and 3% (RBA 2010). The rate of inflation expressed in the DFD price index during this time also remained low, with the DFD inflation trend being similar to that seen in the CPI.

The introduction of The New Tax System (TNTS) saw large increases in both indexes between June 2000 and September 2001, the majority of which occurred in the September quarter of 2000. However, movements such as this should be viewed cautiously as temporary volatility in inflation indicators may not necessarily reflect changes to the underlying inflationary trend (RBA 2010).