At the same time, a slower pace of real convergence does not necessarily prevent a monetary union from being able to stabilise its economy effectively. What matters more is business cycle convergence, since this determines the optimality of monetary policy across states. And business cycles can converge long before income levels do.
Total CPI inflation will continue to be volatile and affected by developments in the markets for crude oil and natural gas, and will average close to 2 per cent in 2007 and 2008 (excluding the effect of any changes in the GST).