We then complement this essentially domestic analysis with an appreciation of what is happening in the international environment in which Australian producers and consumers make their decisions. We can not afford to ignore the world price level, world interest rates, or the variable which connects both of them to the Australian economy - the exchange rate.
Changes in the price of imports in foreign currency terms can have a large impact on domestic inflation as the OPEC oil price rises of the 1970s showed. The recent oil price increases demonstrate the same principle, on a much smaller scale.