Inflation likely to hit RBA target band

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The Consumer Price Index for the March quarter will be released on Wednesday and is expected by economists to have risen 0.6 per cent, achieving a 2.3 per cent annual rate. However, the underlying inflation rate is only expected to have increased by 1.8 per cent.

How does this relate to the HSC syllabus?

  • Inflation refers to a sustained increased in the general price level over time. The average level of prices is measured by the Consumer Price Index (CPI). (HSC Topic 3)
    • The Consumer Price Index measures the price movements of a basket of goods and services that the average household spend on.
    • Headline inflation refers to the rate of change in the CPI that is reported, while underlying inflation is the inflation rate when one-off factors are removed.
  • The Reserve Bank of Australia has a 2-3% target band for inflation.
    • If the CPI level meets economist expectations, then the headline inflation rate will be within the target band. This usually indicates that the economy is operating well and is not growing too quickly or slowly.
    • However, the underlying inflation rate would remain outside the target band. The RBA will usually take the underlying inflation into account into greater consideration than the headline inflation rate because it is more representative of the underlying fundamentals of the economy.
    • The difference in the headline and underlying inflation this quarter is predicted to be driven by rising petrol costs, fruit and vegetable prices and tobacco.

How the 457 visa changes are hitting start-ups

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Malcolm Turnbull has announced a controversial plan to abolish the 457 visa for temporary skilled migrants, seeking to adopt a new “Australians First” approach to skilled migration.

How does this relate to the HSC syllabus?

  • In Australia, the 457 visa is the most common visa for Australian or overseas employers to sponsor skilled overseas workers to work temporarily in Australia.
  • The new visa to replace the 457 visa is meant to ensure that genuine skills shortages are addressed. It has done this by removing skills from the skills list which they think cab be adequately supplied by Australians.
  • This policy influences the level of human capital in Australia.

    • Australia has historically faced a skills shortage in areas such as engineering and science. By putting greater restrictions on which jobs can come from overseas, it makes it harder to fill these skills shortages.
    • Productivity of businesses, especially start-ups, might decrease as positions remain vacant for longer. If this happens at a large scale, this can lead to lower economic growth in Australia.
  • This policy can potentially increase wage levels.

    • As skills become harder to obtain from overseas, firms may have to increase wages to attract local talent. This causes an increase in business costs, potentially leading to higher long term inflation.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of six scholarships. He has experience at a top tier investment bank.

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