I argue that it will be an adaptable system – though to meet some of the challenges may require even more emphasis on the medium-term nature of the target which has been a hallmark (and a strength) of the Australian approach thus far. Why Inflation Targeting? First, some history. Graph 1 shows a long-run series for inflation in Australia, beginning in the mid 1950s.
The post-World War II era was the time when persistently rising prices became a normal feature of economic life. Prior to that, there had been periods of inflation followed by periods of deflation, with relatively little drift in the price level over long periods. Through the 1950s, Australia had positive inflation, but it was quite low on average, even if rather variable.