What’s going on with rising prices?
Inflation. Inflation measures the rate of increase in prices of a basket of everyday items over time. Or simply, the change in the cost of living over time. The most widely used measure of inflation in Australia is the Consumer Price Index (CPI).
The Reserve Bank of Australia is responsible for keeping the rate of Australian inflation under control. The Reserve Bank uses the cash rate as one of the tools to help keep inflation within its target range of between 2% and 3% per year on average, over time. If inflation is expected to be too high, or too low, the Reserve Bank can move the cash rate up, or down, to help achieve the target.
When demand exceeds supply this can lead to inflation and rising prices.
Strong rises in inflation can be caused by many factors impacting the demand and supply of goods and services, including:
- A strong economy and jobs market - people typically spend more money when they earn more and have a secure job.
- Geopolitical events - the Russia-Ukraine conflict saw gas and oil prices skyrocket due to energy production shortages and the reduced supply of wheat and grain made matters worse.
- Supply chain problems such as worker shortages, factory shutdowns, and clogged shipping routes.
- Extreme weather events such as floods, fire and cyclones can also impact the supply of fresh produce.
