Statistical Analysis of the movement of inflation, interest rate and share price index: Australia and the rest of the world

Running Head : Inflation movement in Australia and Canada

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Abstract

In today 's ever competitive and changing global economy puts to task the economic policy makers to adopt policies that are deem fit to compete on the global economic environment , especially with liberalization of economy . In this connectivity , the inflation aspect in a given economy is vital that is becoming a common nations practice . This is why in the recent future global inflation gradually changes away from targets by being defined in terms

of net inflation , but rather transforming them into targets for full . In this respect , this shall look at the Statistical Analysis of the movement of inflation , interest rate and share price index in Australia and Canada

Introduction

In a fast moving and dynamic global business world inflation control is becoming a common practice in most countries economic arena . In this connection inflation refers to the rate of change of the consumer price index used to measure the overall movements in prices of goods and services in the economic scenario . While interest rates are the short term interest rate reflecting the 90-day Treasury bill rate (David 2006 , pp . 132

And lastly share price index is useful tool that measures overall movements of the share prices in the Australian stock market . However after fall of planning in Europe , it was characterized with high inflation rates that needed to monitor . Therefore the vital economic tool that was adapted was inflation target system that was used to track movement of indices trend and their control

Inflation target system uses Core inflation indices to handle shocks that in economic analysis are beyond control through the use of economic policies and impairs reliability of the system . This system is established and utilizes combined elements from CPI (Consumer Price Index ) without eliminating any of the headings . Some systems exclude some items from computing index while other includes particular items in computing index

Australia

Australia inflation target system dates back to 1993 December up to March 1998 . In this system Australia central Bank uses TMUI (Treasury Measure of Underlying Inflation ) index which supports inflation target system and measures inflation . The index was calculated through excluding several items from CPI that conforms to 49 percent of the

The justification for use of Core inflation rests on the premise of excessive seasonality of the full index . Therefore in computation of the Core inflation index the Australian central Bank excludes seasonal items and government controlled commodity prices items from the index

However there is a challenge in construction of the Australian model due to inclusion of the direct consumer credit and mortgage interest payment . Therefore as a result , part of the movement of the index represents adverse and direct impacts of monetary policy of the nation without correctly reflecting economic pressure . In that connection increase in CPI results to an immediate increase in interest rate , which erroneously points to share price indices

Table1 . Australia-Items that are excluded from CPI basket

Item CPI Justification...