Inflation can be described as the sustained increase in the general price level over a given period of time, usually a year. Inflation can have negative effects on many major economic outcomes such as economic growth, exports, international competitiveness and income inequality. Inflation in Australia is measured by the consumer price index (CPI); the CPI outlines the price movement of a basket of goods and services weighted by their importance to the average Australian household. The annual inflation rate is measured by the percentage change in the consumer price index over a one-year period, highlighted in Figure 3.1. Recent Inflation Trends Australia's most significant macroeconomic achievement in recent years has been the sustained decline in inflation rates since the early 1990s. After two decades of high inflation, Australia has reduced its inflation rate and has managed to maintain the lowest level of inflation since the 1960s, shown in Figure 3.2. The year 1993 marked a significant change in Australia's approach to inflation with the implementation of an average inflation target of 2-3% over the business cycle as a guide to determining interest rate decisions. This inflation target was formalized in 1996 through an agreement between the Treasurer, Peter Costello, and the Governor of the Reserve Bank of Australia. Since its implementation, inflation has remained within this target range, with the exception of the introduction of the Goods and Services Tax (GST) in 2000. Both headline and underlying inflation have averaged 2. 7% between 1996 and 2009. Inflationary pressures peaked between 2005 and 2008, with underlying inflation surging to 4.7% due to a combination of higher global prices and difficulty ......News Limited 2009, "Rudd stimulus package protected jobs: OECD". Retrieved May 23, 2010 from -http://www.news.com.au/business/rudd-stimulus-package- protected-jobs-oecd/story-e6frfm1i-1225775501075 Book by Tim Riley Riley, T. (nd). Retrieved May 20, 2010, from: http://www.ato.gov.au/budget/2009-10/content/speech/html/speech.htmWayne Swan 2010, 'Budget Speech 2010-11' Australian Government. Retrieved 20 May 2010 from - http://www.budget.gov.au/2010-11/content/speech/html/speech.htmWestpac Institutional Bank May 2010, 'Westpac Market Insights Australia, New Zealand, G3 and China'. Retrieved June 6, 2010, from: http://www.westpac.com.au/about-westpac/media/reports/australian-economic-reports/