Inflation increased over 2007, and in underlying terms reached the highest rate for 15 years or more. It is true that it was boosted by the international rise in oil and other commodity prices, but Australia’s inflation rate has risen more than most of those in our usual peer group when measured on a  4  BIS Review 77/2008  comparable basis.
As one example, some observers contend that new capital and liquidity rules have led to reduced market-making in secondary fixed-income markets and may also be responsible for occasional liquidity shortfalls and market gaps. We analyze this vulnerability in greater depth in today’s FSR. In fact, it is proving very difficult to assess the liquidity issue empirically.