The Evolution of Inflation Targeting In Australia

When inflation targeting was adopted in Australia is disputed. Some believe it commenced in March 1993 when the Governor of the Reserve Bank (Bernie Fraser) referred in a speech to the desirability of maintaining inflation between 2-3 per cent a year. However, he made a similar remark in a speech in August 1992. Some overseas authorities assert that inflation targeting began in 1994, referring to a speech that Fraser made in September of that year when he declared that 2-3 per cent inflation ‘is a reasonable goal for monetary policy’. The year 1994 is also significant because the Treasurer (Ralph Willis) stated in parliament that the government and the Bank had an inflation target of 2-3 per cent. Paul Keating, on the other hand, prefers 1995 as the commencing date, when he and the Secretary of the ACTU (Bill Kelty) included an inflation target of 2-3 per cent in the final Accord agreement between the government and the trade union movement. Another possible starting date is 1996 when the first Statement on the Conduct of Monetary Policy, signed by the Treasurer (Peter Costello) and the incoming Governor of the Reserve Bank (Ian Macfarlane), endorsed ‘the Reserve Bank[‘s]…objective of keeping underlying inflation between 2 and 3 per cent, on average, over the cycle.’ In all probability, there is no definitive starting date for the commencement of inflation targeting in Australia. Rather, its adoption was the result of an evolutionary process, like many other developments in the history of central banking.