exports. commodity prices overall have declined over the past few months, but they remain around the levels seen at the turn of the year. the decline in the australian dollar over recent months also accords with the fall in the differential between interest rates in australia and those of major economies. again, much of this reflects the rapid and prospective rise in the policy rate in the united states, which is larger than for the cash rate in australia based on market expectations. r e s e r v e b a n k o f au s t r a l i a graph 6 australian dollar index us $ twi * ( lhs ) 0. 75 0. 70 usd per aud ( rhs ) 0. 65 0. 60 index ppt 0. 8 3 - year yield differential * * * ( rhs ) 0. 4 0. 0 rba icp * * ( lhs ) - 0. 4 * trade - weighted index, 1 january 2019 = 100. * * index of commodity prices ( usd terms ), 1 january 2019 = 100. * * * australian sovereign yield less yields of the united states, japan and germany, weighted by gdp. sources : bloomberg ; rba ; yieldbroker the smaller depreciation of the australian dollar in trade - weighted terms than against the us dollar is important because the twi typically has a greater bearing on our imported inflation than any one bilateral rate. [ 9 ] the bank ’ s models suggest the depreciation will contribute to a higher level of consumer prices in australia. but the effect from the depreciation in the twi that we have seen over the year to date of around 2 per cent is estimated to be relatively modest. a rough rule of thumb from our models suggests that the level of the consumer price index ( cpi ) will be higher by only around 0. 2 per cent in total over the course of a few years. one final point on the rapid rise in us interest rates and the appreciation of the us dollar is the potential financial effects of this on other economies. of most concern are some emerging market economies that have elevated levels of foreign debt, denominated in foreign currency terms, and unhedged. australia ’ s offshore debt is well hedged. [ 10 ] moreover, because australian banks issuing debt offshore swap most of that back into australian dollars, in effect they end up paying australian interest rates on that funding, not higher us rates. [ 11 ] in other words, the rise in us

adjusted for ratio of nominal unit labour costs weighted by trade share ; series exclude india and several other asian trading partners as unit labour costs data are unavailable. sources : oecd ; rba ; refinitiv r e s e r v e b a n k o f au s t r a l i a table 1 : key prices and activity average annual growth ( per cent ) pre terms of trade boom ( 1992 / 93 – 2002 / 03 ) terms of trade boom ( 2003 / 04 – 2011 / 12 ) post terms of trade boom ( 2012 / 13 – 2018 / 19 ) exchange rate determinants terms of trade 0. 9 7. 0 −0. 8 rba index of commodity prices 0. 1 16. 1 −3. 2 3 - year yield differential ( ppt change ) * −0. 5 −0. 3 −2. 2 nominal twi 0. 2 2. 7 −3. 7 real twi cpi 0. 2 3. 8 −3. 4 real twi ulc −0. 1 4. 6 −4. 8 −0. 9 −0. 7 −1. 7 consumer price index 2. 3 2. 8 1. 9 trimmed mean consumer price index 2. 5 3. 0 2. 0 wage price index 3. 3 3. 8 2. 2 australia 1. 9 4. 1 1. 1 trading partners * * * * 0. 7 1. 4 2. 0 exchange rate measures domestic policy cash rate target ( ppt change ) * * wages and prices * * * unit labour costs * australian sovereign yield less yields of the united states, japan and germany, weighted by gdp ; absolute percentage point change in average differential between start and end of period. * * absolute percentage point change in average rates between start and end of period. * * * consumer price indices are adjusted for the tax changes of 1999 – 2000. trimmed mean inflation excludes interest charges prior to september of 1998. * * * * in local currency terms, weighted by trade share. series exclude india and several other asian trading partners as unit labour costs data are unavailable. note : data not available for full 1992 / 93 – 2002 / 03 period for 3 - year yield differential and wage price index. sources : abs ; bloomberg ; oecd ; rba ; yieldbroker once the terms of trade and mining investment declined, and the associated labour was freed up from the resources sector, this process of adjustment worked in reverse. the