, the way that changes in the exchange rate affect price changes for retail items. http : / / www. rba. gov. au / speeches / 2018 / sp - dg - 2018 - 08 - 22. html 5 / 23 22 / 08 / 2018 low inflation | speeches | rba graph 4 illustrates that changes in the exchange rate typically pass through quickly to import prices for retail goods. that is, the prices of imported goods at the docks tend to move very much in line with movements in the exchange rate ( first - stage pass - through ). when the exchange rate depreciates, these at - the - dock prices increase. this relationship hasn't changed much over the past 25 years. in the two decades up to 2010, these changes in import prices at the docks tended to be passed on to the retail prices faced by consumers. however, over the past decade or so there has been a shift in these pricing dynamics for retail goods. graph 4 while slower growth in consumer spending over this time frame compared with the earlier period has probably played a role in explaining retailers'reluctance to pass on higher import prices, it is the http : / / www. rba. gov. au / speeches / 2018 / sp - dg - 2018 - 08 - 22. html 6 / 23 22 / 08 / 2018 low inflation | speeches | rba structural changes underway in the retail sector that are putting downward pressure on prices. one aspect of this is that the internet, and technology more generally, have meant that foreign retailers can now compete with local retailers for online shopping, which is a small but rapidly growing part of the retail market. in june, online sales made up around 5 per cent of total retail trade according to the australian bureau of statistics ( abs ) ; however, the value of online sales has grown by 50 per cent over the past year. this competitive pressure is not confined to online market share, with a number of large foreign retailers also setting up ‘ bricks and mortar ’ retail operations in australia. in addition to the direct competition from this source, there is also greater information about prices, which has allowed households to comparison - shop more easily and negotiate greater discounts off listed prices. competition is not directly observable, but we can look at some proxies for it to assess how it has changed. two proxies for competition are mark - ups and margins. mark - ups measure the ratio of a firm's sale price to its marginal cost

foreign exchange market opened on 12 december 1983, without the reserve bank making a price for the first time in decades, people would have been uncertain what would happen. yet policymakers had tried all the alternatives and the float was an idea whose time had come. it was a profound decision – part of a recognition that australia was see andrew and broadbent ( 1994 ) and becker and sinclair ( 2004 ). bis central bankers ’ speeches part of a wider world, and that we had to reform our own policy and economic frameworks in order to have the sort of prosperity that we wanted as a society. on 12 december this year we can expect the exchange rate to move a little, one way or the other, and for this to be reported in a very matter - of - fact way on the news broadcasts. we will be able to get updates on our smart phones and to read seemingly limitless quantities of analysis about why it moved the way it did, and predictions about what it might do next, most of which we shall ( sensibly ) ignore. we would be able, if we wished, to trade foreign currencies from those devices in a way unimagined thirty years ago. ( for the record, i am not recommending the practice. ) for the dollar to move around in the market as the various players balance supply and demand is now considered normal, and most of the time it is considered no more newsworthy than the price of milk or petrol, and less newsworthy than the price of houses. over the past thirty years, the exchange rate has on occasion been the subject of excitement, concern, even shock. it has acted as a shock - absorber, as intended, but it has also served as a disciplining constraint at times. generally speaking, that was good for us. at various times we have worried that the market was behaving irrationally, believing that the exchange rate should have been somewhere other than where it was. and sometimes we were right about that. yet, looking back, on balance the evidence suggests, i think, that the market has mostly moved the exchange rate to about the right place, sooner or later. we sometimes didn ’ t like the pathway. but if i ask the question of whether i would have consistently done a better job setting that price, even had that been feasible ( which it wasn ’ t ), i don ’ t think i could confidently answer in the affirmative. no doubt at some australian business economists