service roles and these days many people in professional services work with team members located in other countries. in addition, many tasks, such as accounting and payroll, are being automated. all this has been made possible by technology and by globalisation. the new global technology platforms have also revolutionised services such as retail, media and entertainment, and transformed how we communicate and search for information and compare prices. these changes are having a material effect on pricing, with services price inflation lower than it once was. many firms know that if they don't keep their prices down, another firm somewhere in the world might undercut them. and many workers are concerned that if the cost of employing them is too high, relative to their productivity, their employer might look overseas or consider automation. and, more broadly, better price discovery keeps the competitive pressure on firms. the end result is a pervasive feeling of more competition. and more competition normally means lower prices. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 07 - 25. html 6 / 14 7 / 25 / 2019 inflation targeting and economic welfare | speeches | rba so these are the three important factors that are contributing to low inflation. none of them by themselves is sufficient to explain what is happening, but together they are having a powerful effect. the current high inflation rates in argentina and turkey remind us that globalisation and technology, by themselves, do not drive low inflation. the monetary framework clearly matters too. weaknesses in that framework still result in high inflation. 2. is inflation targeting still appropriate? this brings me to my second question : is inflation targeting still the appropriate monetary framework for most countries? it is understandable that people are asking this question. given the factors that i have just discussed, some commentators have argued that central banks will find it increasingly difficult to achieve their inflation targets. some then go on to argue that central banks should just accept this, not fight it ; perhaps they should shift the goal posts, or even adopt another monetary framework. a related argument is that the very low interest rates that have accompanied the pursuit of inflation targets are pushing up asset prices in an unsustainable way and sowing the seeds for damaging problems in the future. you might, or might not, agree with these perspectives. either way, it is reasonable to ask if we are on the right track : is inflation targeting still appropriate? before i address this question, i would like to

a time when household balance sheets were already very extended. our judgement was that, given the progress that was being made towards our goals, it was appropriate to use the flexibility in our inflation target to pursue a course that was more likely to be in the country's long - term interest. we could have generated a bit more inflation, but we would have had faster growth in household debt as well. i acknowledge that others might see this trade - off differently. but given the unemployment rate was coming down and inflation had lifted from its trough, we did not see a strong case for monetary easing. towards the end of last year, that assessment began to shift. inflation was turning out to be lower than we had earlier expected and our forecasts for inflation were being marked down. there are a few reasons for this, but the one i want to highlight today is the flexibility of labour supply, as this links back to my earlier discussion of the reasons for low inflation globally. when we prepared our forecasts in mid 2017, we did so on the basis that the share of the adult population participating in the labour market ( the participation rate ) would remain steady over the next couple of years ( graph 7 ). at the time, this was considered a reasonable forecast : while we expected some increase in participation from an encouraged worker effect because of solid employment growth, we thought this would be offset by the ageing of the population. graph 7 https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 07 - 25. html 12 / 14 7 / 25 / 2019 inflation targeting and economic welfare | speeches | rba since then, things have turned out quite differently. employment growth has been much stronger than expected and the participation rate has risen by 1½ percentage points, which is a large change over a fairly short period. put simply, the strong demand for labour has been met by more labour supply. it is useful to consider the following thought experiment. suppose the participation rate had still risen materially, but by ¾ per cent, rather than 1½ per cent. all else constant, this would have meant the unemployment rate today would have been well below 5 per cent. this flexibility of labour supply is a positive development and has meant that strong employment growth has not tested the economy's supply capacity. more demand for workers has been met with more labour supply. this has contributed to the subdued wage outcomes over recent times, which in turn has contributed to the