What’s the point of inflation?

First question, Richard, is what is inflation and why are we always trying to tackle it?

Okay.

So economists have a very narrow definition of inflation.

I'll come to that in a second.

But for most people, inflation just means price rises.

So things going up in price gets called inflation.

So if you're going to the shops and bread's dearer and milk's dearer and petrol's dearer, that's inflation.

Now, the way economists measure inflation, well, that's a bit of a can of worms.

There's lots of different ways that it can be measured and different countries measure it differently.

But in Australia, the most common thing we do is we have this thing called the Consumer Price Index, and that involves the Australian Bureau of Statistics literally going out into the shops a lot, going online a lot, ringing up and trying to buy electricity a lot and keeping track of all the prices.

So inflation for people means prices going up, inflation for economists usually, but not always means the consumer price index.

But in a nutshell, people would prefer it if prices didn't go up a lot.

So most people would prefer to have low inflation rather than high inflation.

But in Australia, we've become so scared of inflation and the Reserve Bank is so scared of inflation that we are willing to really hurt people with mortgages to jack up interest rates.

Sometimes we've even had recessions and caused mass unemployment because we're so scared of inflation.

So if inflation is just things getting more expensive, how do they measure it? And is it just things?

It's goods and services.

So the good folk at the Australian Bureau of Statistics are literally out there measuring the price of bread, the price of tomato sauce, the price of pasta.

They're also looking at the price of a university degree.

So HECS repayments are a part of the consumer price index.

But what people probably don't realise is that we're only measuring prices in the capital cities.

The Australian Bureau of Statistics measure of inflation, the consumer price index, just refers to prices in the eight capital cities.

So we don't really have any data on what's happening in regional Australia.

We certainly don't have much data on what's happening in remote Australia.

So that's a big thing because people who live in those areas might be experiencing much bigger price rises, especially when petrol's been expensive, but we're not capturing that data.