Guy Debelle, Mr. Miguel A Savastano, Mr. Paul R Masson, and Mr. Sunil Sharma
Inflation distorts prices, erodes savings, discourages investment, stimulates capital flight, inhibits growth, and makes economic planning a nightmare. During the past decade, several advanced economies have taken a new approach to the age-old problem of controlling inflation through monetary policy known as "inflation targeting." This pamphlet explains the requirements of putting the new policy in place, the experience of the countries that have tried it, and whether it has applicability to developing countries.
The speeches made by officials attending the IMF–World Bank Annual Meetings are published in this volume, along with the press communiqués issued by the International Monetary and Financial Committee and the Development Committee at the conclusion of the meetings.
1.0 A price index number is a summary measure of the proportionate or percentage change in a set of prices over time. Export and import price indices (XMPIs) measure the overall change in the price component of transactions in goods and services between the residents of an economic territory and residents of the rest of the world. The prices of different goods and services all do not change at the same rate. A price index thus summarizes their movement by averaging over them. A price index assumes a value of unity, or 100, in some reference period. The value of the index for other periods of time provides the average proportionate or percentage change in price from the reference period.
Australia’s economic performance has been impressive in recent years. Growth has been healthy, with real output climbing by more than 25 percent between the 1991 cyclical trough and the end of 1997. Moreover, in contrast with previous cycles, this growth has been evenly paced; “boom-and-bust” experiences have been avoided, and the expansion has been well balanced on both the demand and supply sides. Another striking aspect of this recovery has been the low rate of inflation. Since 1991, underlying inflation has averaged just 2¼ percent, and has never exceeded 3⅓ percent. Thus, with respect to both growth and inflation, Australia has compared very favorably with other Organization for Economic Cooperation and Development (OECD) countries in the 1990s.
10.1 This chapter provides a general description with examples of the ways in which export and import price indices (XMPIs) are calculated in practice. The methods used in different countries are not exactly the same, but they have much in common.