Economics Assignment INFLATION Essay

Economics WDB1004

Assignment, part: Inflation

Inflation

a. Explain what the article is about

This article is about if Australian economy is still capable of achieving growth in excess of 3 per cent. The underlying measures of price growth rose to 0.9 per cent in the December quarter which, if sustained, would push inflation well over the top of the Reserve bank’s 2-3 per cent band. It explains that Australian economic growth is slow at this moment, 18 months of growth having been below trend, unemployment having gone up, wages growth having slowed and wage rises are the smallest seen in the 15 years. It also partly reflected the depreciation of the Australian dollar pushing up the cost of imports which also causes the price of domestic goods and services to rise.
An Analysis by HSBC’s chief economist Paul Bloxham earlier this year show that potential growth had slowed from 3.5 per cent a decade ago to close to 2.8 per cent. Labour force growth has been weak, reflecting the ageing of the population, while productivity growth, which averaged 2.2 per cent from 1991 to 2003, had since slowed to 0.5 per cent.
He argued that the productivity slowdown reflected that lack of commitment to economic reform over the past decade, which had left Australian with a more inflexible labour market, and inefficient tax system and inadequate infrastructure.
The March quarter inflation report which was published this Wednesday showed a moderate rise of around 0.7 per cent for the key underlying figure. Business surveys are not detecting any unusual inflationary pressure and the “bottom-up” analyses show that the seasonal increases in the cost of health and education, along with higher petrol prices will be offset by falls in clothing, household equipment and recreation. This would leave the stance of the Reserve Bank and financial markets unchanged.
A repeat of the December quarter’s inflation result would cause markets to bring forward their estimates of when the Reserve Bank will start lifting rates again into the second half of this year.

b. Discuss the economic issues the article is addressing

The way I understood the article it addressing to Reserve Bank thinks that the Australian economy is still capable of achieving growth increase of 3 per cent. Even though it been very slow, meaning Australian dollar decreasing in value, prices of imports is rising and less stock been imported from other countries since businesses don’t invest. Per cent of unemployment goes up and wages growth has been slowed. As HSBC ‘s chief economist analysis show that potential growth had slowed from 3.5 per cent a decade ago to close 2.8 per cent. Labour force growth has been weak, reflecting the ageing of the population, while productivity growth, which average 2.2 per cent from 1991 to 2003, has since slowed to 0.5 per cent. All due to slow productivity which reduced over the past decade, which has left Australia with a more

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