bulletin, january. see lancaster d ( 2021 ), ‘ the financial cost of job loss in australia ’, rba bulletin, september ; coates b and a ballantyne ( 2022 ), ‘ no one left behind : why australia should lock in full employment ’, grattan institute ; rba ( 2023 ), ‘ box b : scenario analysis on indebted households ’ spare cash flows and prepayment buffers ’, financial stability review, april. this scenario was illustrated in the march 2024 financial stability review. see rba ( 2024 ), ‘ 4. 1 focus topic : scenario analysis of the resilience of mortgagors and businesses to higher inflation and interest rates ’, financial stability review, march. r e s e r v e b a n k o f au s t r a l i a

inflation – as measured by the year - ended change in the cpi – reached 17. 7 per cent in march 1975 and it remained around 10 per cent on average for the rest of the 1970s and early 1980s ( graph 5 ). graph 5 cpi inflation * year - ended % % inflation targeting period averages - 5 * - 5 excludes interest charges prior to the september quarter of 1998 ; adjusted for the tax changes of 1999 – 2000. sources : abs ; rba. for those who experienced it, memories of that period may have faded – and for many younger people it probably seems like ancient history. but institutions can preserve the lessons of the past. the move to flexible inflation targeting by many central banks in the 1990s embodied the strong consensus at the time that inflation was harmful and that the way monetary policy had operated in the 1980s had not been sufficient for many central banks to bring inflation down. high and variable inflation is harmful because it raises uncertainty and makes it harder to plan for the future. it can distort economic activity, affecting decisions about investment and employment and ultimately hurting productivity and household incomes. for example, it might be hard for a firm to lock in a supply contract if it doesn ’ t know what prices are going to be over the next year. in turn, this might make it harder to make expansion plans. high and variable inflation can also cause shifts in people ’ s wealth and spending power. agreeing to a new contract, or making saving plans, is harder if you don ’ t know how expensive things will be in the future. moreover, high inflation eventually requires disinflation, which can have long - lasting costs for households through higher unemployment. setting a clear and transparent inflation target helped guide the reserve bank board ’ s decision - making. but it also provided a clear anchor for inflation expectations, resulting in lower and more stable inflation. over the inflation targeting period well - anchored inflation expectations have enabled monetary policy to more effectively respond to the ups and downs of the economic cycle, stabilising the economy and creating the conditions for steady growth and job creation. the anchor has held through the recent inflation episode – but we do not and cannot take that for granted. over time, inflation expectations will only remain aligned with the target if we continually work to return inflation there when it moves too far up or down. the timeframe over which we do so can ( and does ) vary as we take account of our full employment objective. but, over the medium term, our full