At the start of 2022, many economists debated whether expansionary fiscal policies in Australia would trigger unsustainable inflation or help bridge the negative output gap. The Reserve Bank of Australia (RBA) maintained its inflation target band of 2% to 3% to anchor long-term expectations.
Due to supply-side disruptions and rising global energy costs, consumer prices rose steadily throughout the financial year. Between June 2021 and June 2022, Australia's Consumer Price Index (CPI) increased from 112.5 to 118.8. This surge raised expectations of aggressive interest rate hikes by the central bank to prevent wage-price spirals.
Simultaneously, Australia's national debt increased to 45% of GDP, though this remained low compared to other OECD nations such as the USA, where public debt exceeded 125% of GDP. Policy makers faced the challenge of balancing debt reduction with the need to support public services amidst rising borrowing costs.
Using information from the stimulus material, calculate Australia's 12-month inflation rate in June 2022.
