we cannot pretend that there are not very real concerns about the short - term outlook, it is still not unreasonable to think that the world economy will gradually work off the excesses of the boom and that we will in due course experience better conditions than we see just now. that remains the majority view of observers. some medium - term possibilities on the assumption, for the moment, that that view is right, it is worth asking what similarities or differences we might expect in the next half decade as compared with the preceding period of growth in the second half of the 1990s. here are some possibilities that occur to me. 1. overall, us growth will probably be more moderate than it was from 1995 to 2000, which was an exceptional period and contributed to some macroeconomic imbalances. whether that means global growth will also be lower than in the second half of the 1990s, or about the same but better balanced between major regions, is not yet clear. it could be hoped that we might see better growth in japan than we have seen in recent times. we could also hope for the same from europe. better balanced growth ordinarily would be a recipe for less variability in exchange rates and capital flows among the major countries, although such a conclusion would depend on currency alignments being about right to begin with. 2. non - japan east asia will once again be the world's fastest growth area ( in fact, that is already the case ). more specifically, china will continue to emerge as an increasingly big economy and will account for an increasing share of global trade. china has doubled its share of the world export market over the past decade. of course, china is not only an exporter, but an importer as well, which creates opportunities for other nations'firms. china also has some structural challenges, which are still in the process of resolution. 3. prices overall seem likely to be pretty stable, with inflation rates low. in both europe and the united states, core inflation rates will probably be declining for the next year or so, and will by then be quite low. examples of deflation - that is an actual fall in the price level, as opposed to disinflation, a decline in its rate of increase - could conceivably become a little more common around the world in this half - decade. in fact, at present this is particularly noticeable in asia, with several countries ( including both japan and china, the two largest regional economies ) experiencing falling prices over

speech inflation and the monetary policy framework philip lowe [ * ] governor speech to the anika foundation sydney – 8 september 2022 i would like to begin by thanking everybody who is attending today in support of the anika foundation. it ’ s been a hard time for young people over the past couple of years, so the foundation ’ s work supporting young australians is more important than ever. thank you for your support. last year, this event was held online as we were in the midst of the delta outbreak. at the time, the economy was contracting, inflation was below the target band and the normalisation of monetary policy still seemed to be in the distance. a year on, a lot has changed. we are no longer in lockdowns, the economy has performed well, unemployment is at a 50 - year low, inflation is the highest it has been in years and interest rates are being increased quickly. today, i would like to focus my remarks on the pick - up in inflation. after a number of years in which inflation was below target, it is now considerably above target and is expected to go higher still in the short term. the extent of this turnaround in inflation has come as a surprise to many, including us. so, i would like to begin by exploring some of the lessons from this surprising burst in inflation. i will then discuss why, in my view, flexible inflation targeting remains the appropriate monetary policy framework for australia. i will conclude with some remarks on the importance of returning inflation to target over time and how the rba ’ s recent monetary policy decisions will help achieve this. a very large inflation surprise first, to the very large surprise in inflation. when i spoke at the anika foundation event last year, cpi inflation in australia had been below 2 per cent for a number of years and, in underlying terms, was just 1. 6 per cent ( graph 1 ). today, cpi inflation has risen to 6. 1 per cent and underlying inflation is 4. 9 per cent. these are the highest rates in many years. graph 1 consumer price inflation * year - ended % % headline trimmed mean - 2 - 2 * excludes interest charges prior to the september quarter of 1998 ; adjusted for the tax changes of 1999 – 2000. sources : abs ; rba this lift in inflation has come as a surprise. a year ago, the rba was forecasting that inflation over 2022 would be just 1¾ per cent. now, we are expecting cpi inflation