4.
Too much money chasing
too few goods
Aggregate Demand is
excessive and exceeds
available resources.
Demand Pull Inflation
5.
Generally caused by:
High levels of Consumption
spending
High levels of income driven by high
demand for labour
Excess money supply
Which stage of the Business Cycle would these conditions
predominate in?
Demand Pull Inflation
7.
Mainly caused by changes in the
prices of significant productive
inputs such as:
Wages
Oil
Increased gov. taxes and charges
Price of imports (esp. capital goods)
Cost Push Inflation
8.
In reality it is very difficult to
distinguish between cost and pull
inflation occurring in the economy.
Wages are a good example – if an industry has a
significant pay rise, it will increase the cost of a resource
(labour) but will also increase the income and thus
increase demand of the workers in that industry
Demand and Cost
Inflation
11.
JUNE QUARTER
Contributing significantly to the negative inflation
result last quarter was a 19.3% fall in the cost of
petrol, reflecting decreased world oil prices as Russia
and the OPEC nations failed to reach agreement on
supply constraints.
Recent influences on inflation
12.
The temporary removal of Childcare fees by the
Commonwealth Government also had a material
impact, with prices in the Childcare category
dropping 95%.
A temporary freeze on private health insurance
premiums also avoided what would have normally
been a period of higher annual private healthcare
costs
Government Response:
COVID
13.
Housing costs were 0.7% lower in the quarter, with
rising rental vacancy rates resulting in rent costs
falling 1.3%. This was the first quarterly fall in rents
since the series commenced in 1972.
In addition, electricity prices also dropped 2.5%
following the introduction of new rebates in some
capital cities to assist households dealing with the
impacts of COVID-19.
Housing
14.
With large proportions of selected industries
shutdown over the quarter, the Australian Bureau of
Statistics was forced to “impute” price rises for 9% of
items normally measured. This imputation process
involved assigning the unmeasurable categories with
the overall average CPI price decline.
Hence the imputation process effectively magnified
the impact of the large movements in petrol and
childcare prices.
Closures
15.
the overall decline in the CPI, there were some categories
that still recorded price increases last quarter.
Impacted by higher excise duties, tobacco has now risen
8.4% over the past year following a further 2.7% jump in
the June quarter.
A 6.2% increase in cleaning and maintenance products, as
well as a 3.8% rise in furniture prices (possibly due to
increased home office related expenditure), appeared to
be 2 areas where COVID-19 related changes in
expenditure patterns impacted positively on prices.
However….
16.
Supply Shocks
Unforeseen events occasionally
occur, most famous - Oil Shocks of
‘73 and ’79
Conflict and War
Weather and Climate
Other recent influences on
inflation
17.
The Business Cycle
Prior to the GFC Australia had 15
years of Economic Expansion and
boom-like conditions due to the
emergence of Asian powerhouses
first in SE Asia, then China and then
India.
Recent influences on inflation
18.
Structural Change and Deregulation
The structure of markets, government
regulation and the economy has changed a
lot. This has helped to reduce inflation
Tariffs reduced
Deregulated markets (e.g. Finance,
Agriculture)
Linking wage growth to productivity
rather than inflation itself.
Recent influences on inflation
19.
Expectations
Oddly the ‘mood’ or psychology of
Households will often result in self-
fulfilment.
EG If unions expect larger than
average inflation in the future they
may push for larger than average wage
rises which will…
Recent influences on inflation
20.
Monetary Conditions
Inflation is only possible because of
money, if the money supply (cash and
accounts in financial institutions)
available increases and credit is cheap
then excess spending is often the result.
Recent influences on inflation
Editor's Notes
Describe the changes seen in the period shown on the graph
