Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

Mr President, Senator Sherry asked the question. I would like an opportunity to answer it. As to the question of the rate of inflation and the target set by the Reserve Bank, the last inflation rate on an annual basis was a 3.9 per cent figure, influenced most particularly, as Senator Sherry knows, by the significant increase in the cost of food, which has had a number of impacts upon it, not least the drought and the cyclone, and also by the costs of transport fuels which, as he well knows, have increased substantially for reasons totally beyond the control of the Australian government.

The Reserve Bank’s target is to keep inflation between two and three per cent over the course of the economic cycle. It always looks at underlying inflation and inflation across the cycle; it does not just take one period of inflation and react immediately. The great policy virtue of the current settings is of course that the Reserve Bank has been granted independence in the setting of monetary policy, and it does so on the basis of keeping inflation in the band over the course of the economic cycle. It is one of the most significant policy decisions this government has made and one of the most important. The Reserve Bank is credited throughout the world with having managed monetary policy in this country extremely well against the backdrop of all the things we have done as a reformist government to ensure that we keep to a minimum inflationary pressures in the economy.

So inflation is a serious issue. It is critically important that the Reserve Bank observes its charter and acts in relation to monetary policy to ensure that the inflation genie never gets back out of the bottle, as it has in the past in this country—and, I concede, not only under the former Labor government but under former coalition governments that predated the former Labor government. The great thing about our period of government is the independence of the Reserve Bank and the fact that we have reformed the economy in such a fashion that there is less pressure on inflation. The record speaks for itself: average inflation under our government is at 2.6 per cent; under our predecessors it was 5.2 per cent.