Inflation measures the rate of price change
Inflation describes a broad rise in prices over time. In Australia, the Consumer Price Index is a central measure used to track changes in the prices of a basket of goods and services purchased by households.
The CPI is an index, not the price of one typical family's exact shopping basket. Individual households can experience very different cost pressures depending on housing, transport, health and consumption patterns.
Lower inflation is not the same as lower prices
If annual inflation falls from a high rate to a lower positive rate, prices are generally still rising; they are just rising more slowly. Prices fall in aggregate only when the relevant index records deflation over the period.
This distinction is frequently lost in political arguments. A lower inflation rate can be economically significant without reversing the earlier increase in the price level.
Headline and underlying measures
Economists and the Reserve Bank also examine measures designed to reduce the influence of unusually volatile price movements. One widely discussed measure is trimmed mean inflation.
Different measures answer different questions, so claims that one number is the 'real inflation rate' should be treated cautiously. The ABS and RBA explain why multiple indicators are used.
What governments can and cannot control
Fiscal policy, taxes, subsidies and regulation can affect demand and particular prices, while global energy markets, exchange rates, weather and supply disruptions can also influence inflation. The Reserve Bank independently sets monetary policy within its statutory framework.
It is therefore too simple to attribute every movement in CPI to one government decision or one interest-rate change.
How to verify an inflation claim
Check the ABS release for the exact quarter or month, whether the claim refers to annual or quarterly growth, and whether it uses headline CPI, trimmed mean or another measure. Base effects can also make annual comparisons move sharply.
For monetary-policy interpretation, use RBA statements and forecasts alongside the ABS data rather than relying on partisan descriptions of the figures.
Primary sources and further reading
We use authoritative Australian institutions as the starting point for this explainer. Follow these links for the underlying rules, official guidance and current details.