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Headline inflation here is 1 per cent and measures of underlying inflation are running at around 1½ per cent.
These low inflation outcomes globally and in Australia are coexisting with low wage outcomes. The first – and the most conventional – explanation is that the low inflation reflects the economic slack in the global economy.
This occurred just at the time that other structural changes in the economy were making jobs less secure.
This increased value put on job security has made many workers less inclined to push for large wage rises.
So the low inflation outcomes in the advanced economies reflect a combination of three factors – excess capacity, lower commodity prices and perceptions of reduced pricing power.
I would like to offer some reflections on these three factors from an Australian perspective. While the Australian economy has performed better than many others over the past decade, we still have some spare capacity.
I would like to thank Citi for the invitation to speak at this year's Investment Conference. This is my first speech as Governor of the Reserve Bank of Australia, so I would like to organise my remarks around the topic of inflation and monetary policy.
This could simply be the consequence of the increased economic slack but, in my view, there is something more structural going on, driven by the globalisation of markets and technology.The two measures shown are headline CPI inflation and the trimmed mean measure.We too have now joined the club of countries with headline inflation noticeably below the medium-term average, although we are a more recent member than many others.This morning I would like to focus on three interrelated issues.The first is why we have seen these low inflation outcomes across much of the world.