Acceleration in the group of prices generally classified as “nontraded” was quite pronounced. The background environment was one in which demand in Australia – which grew by over 5½ per cent in 2007 – outstripped, by a significant margin, any plausible estimate of growth in potential supply.
There certainly were international forces at work, but the key one was the expansionary effect of the rise in the terms of trade. It is perhaps worth spending a few minutes on the basic analytics of this issue.