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  • Essay / The impact of the global financial crisis on inflation

    The impact of the global financial crisis on inflationAfter the onset of the global economic recession in 2008, inflationary pressures eased. Slowing economic and income growth has reduced the ability of businesses to raise consumer prices, while reduced demand for labor and materials has eased inflationary cost pressures. businesses. In 2009, headline and core inflation fell to the lower end of the Reserve Bank's inflation target range of between 2 and 3%, where the Treasury had forecast inflation (CPI) of 1. 5% in 2008-09. policyFiscal policy has played an important role in keeping inflationary pressures low. In response to government overspending in the 2008-09 budget deficit, the government also increased the size of the planned budget surplus to $1.0 billion in 2012/13, an improvement of $16.9 billion compared to forecasting the mid-year economic and financial outlook with the objective of maintaining low inflation in the economy as public demand declines. However, in 2009–10 the government's fiscal strategy was changed, with the government increasing spending to stimulate the economy and inflation being a much lower priority. Monetary Policy With the global economy expected In 2009, for the first time in six decades, concerns about the impact of the economic slowdown took precedence over worries about rising inflationary pressures. In a short span of 9 months, the spot rate fell to 3%, lowered by 4.25 percentage points following the Reserve Bank's implementation of an expansionary monetary policy. However, now that economic conditions in Australia are stronger than expected and confidence measures have recovered, the Reserve Bank has changed its monetary policy in favor of a contractionary policy, involving domestic confidence measures.