Australians Misunderstand Inflation, But RBA Finds Control

Australians are concerned about inflation, but many don't understand its causes or how to control it. The Reserve Bank of Australia (RBA) is responsible for keeping inflation within a 2-3% target range, and it controls the cash rate, which affects interest rates on loans and savings.

The RBA recently surveyed Australians about their views on inflation, and found that over half believed higher interest rates would lead to higher inflation. However, this contradicts the RBA's purpose of raising interest rates to lower inflation.

American economist Milton Friedman famously declared in 1965 that 'inflation is always and everywhere a monetary phenomenon caused by excessive money supply growth.' Friedman's statement was based on his analysis of US monetary data from 1867-1960, which showed a strong correlation between money growth and inflation.

Friedman's claim has been confirmed by subsequent studies across multiple countries and time periods. Controlling inflation is thought to be achievable by controlling money supply growth, but this raises questions about what constitutes money supply and how it can be controlled.