Using data from the Australian Bureau of Statistics (ABS)collect information on the consumer price index (CPI) and average weekly earnings for the period 2005 to 2015 inclusive. Employ annual figures. Define and provide sources for the data obtained including the ABS catalogue number.
Calculate the rate of inflation based on the CPI and the rate of average weekly earnings growth and plot the inflation rate and weekly earnings growth on a single diagram using time on the horizontal axis. Provide an economic interpretation of these time series plots.
In this question, there are found to be three aspects to make a provision of an economic interpretation. The consumer price index is found to be a measure examining the prices (weighted average) of a consumer goods and services basket like medical care, food and transportation. It is computed while taking the changes in price for every item within the basket of goods that are predetermined and then making an average of them.
The CPI changes are utilized to assessing the changes in price further associated with the living cost and hence, CPI is the frequently utilized statistics for the identification of the deflation or inflation period. On the other average weekly earnings is found to be a lead indicator for the changes in earnings within the short term (Hwang, 2001). The average weekly earnings are computed two times within a year by the Australian Bureau of Statistics.
Therefore, it looks at the earnings on a weekly basis across the territories, public and private sectors, states and industries (Kovács, n.d.). Hence, the average weekly earnings measures the average earning level within Australia at a specific time period. On the other hand, the rate of inflation is found to be a measure of the pace at which a currency loses the worth. In short, how fast the prices for services and goods can rise time by time. This indicates as to how much less any currency unit can purchase in comparison to the currency unit in the past. The inflation rate is calculated while keeping in mind the (current cpi – previous cpi)/current cpi.
|
Financial year
|
Weighted average of eight capital cities
|
Australia
|
Inflation Rate
|
Rate of average weekly earnings
|
|
2006–07
|
86.9
|
1,060.50
|
2.96%
|
4.093%
|
|
2007–08
|
89.8
|
1,109.10
|
3.34%
|
4.583%
|
|
2008–09
|
92.6
|
1,172.90
|
3.12%
|
5.752%
|
|
2009–10
|
94.8
|
1,238.50
|
2.38%
|
5.593%
|
|
2010–11
|
97.7
|
1,290.00
|
3.06%
|
4.158%
|
|
2011–12
|
100
|
1,339.70
|
2.35%
|
3.853%
|
|
2012–13
|
102.3
|
1,408.50
|
2.30%
|
5.135%
|
|
2013–14
|
105
|
1,445.60
|
2.64%
|
2.634%
|
|
2014–15
|
106.8
|
1,480.10
|
1.71%
|
2.387%
|
|
2015–16
|
108.3
|
1,508.30
|
1.40%
|
1.905%
|
The average weekly earnings in Australia go through various fluctuations in accordance with the time period given. While, the inflation rate has also been through various fluctuations. It can be said that whenever the inflation rate has increased, weekly average earnings in Australia have decreased and vice versa. This is clearly shown above as during 2007, the inflation rate is around 3.2% and the average weekly earnings is 5.1% while during 2008, the inflation rate has decreased to 2.8% and then the average weekly earnings has risen to 5.8%. Therefore, the relationship is quite clear that whenever the inflation rate is higher, the average weekly earnings will be lower.
Employ the aggregate demand and supply model for the Australian economy, to analyse the consequences for real GDP and the general price level of the following scenarios. Confine your analysis to the short-run. In your response clearly state your assumptions and illustrate your answers with diagrams.
- With the rise in price of export good, the exporting quantity will fall since fewer quantity is demanded within the international market. The net exports i.e. X – M will fall and hence, the aggregate demand will shift to the left. Due to this the price will fall and the output will also fall.("Debating Aggregate Demand and Aggregate Supply: Introduction", 2010) In accordance with the favorable conditions that increase, the output will shift the AS to right.
- In accordance with the governmental expenditure on developing broadband network across the country within the infrastructural development since the rise in governmental expenditure, AD will rise and then the AD curve will shift outward. Since the price rises from Po to P1 and then, the GDP will also rise.
As the price of oil falls, the net exports (export – import) of Australia will fall since the import quantity rises. This will result in the Aggregate demand to shift leftward. The price level falls and hence, the output also falls.Aggregate Demand and Aggregate Supply: Introduction", 2010)
References
Debating Aggregate Demand and Aggregate Supply: Introduction. (2010). Review Of Radical Political Economics, 42(3), 307-307. https://dx.doi.org/10.1177/0486613410377461
Hwang, Y. (2001). Relationship between inflation rate and inflation uncertainty. Economics Letters, 73(2), 179-186. https://dx.doi.org/10.1016/s0165-1765(01)00482-7
Kovács, I. Biasing Factors of the Consumer Price Index. SSRN Electronic Journal. https://dx.doi.org/10.2139/ssrn.469000.
