symmetrical inflation target. crucial to the success of such a policy is the ability to anchor inflation expectations on the target. for this to be the case, the target must be clear and well understood. from may 1997 the target was 2½ % for rpix inflation. but in december the chancellor gave the monetary policy committee a new target for inflation. it is 2 % as measured by the consumer prices index or cpi, formerly known as the harmonised index of consumer prices. what is this new inflation measure, and how will it affect monetary policy? on the rpix measure, inflation was at or above target for the whole of last year. in contrast, the cpi measure of inflation was below 2 % throughout the same period. indeed, cpi inflation has been below 2 % for all bar three months since may 1997, and it is almost six years since it was last above 2 %. how can it be possible for inflation to move from above to below target - just like that? to answer that question, we need to examine how inflation is calculated. inflation is measured as the increase in the price of a particular basket of goods and services over the previous twelve months. so there are as many measures of inflation as there are baskets. since no two people in this room spend their income on exactly the same items, in principle each of you could construct your own measure of inflation. the office for national statistics calculates an average inflation measure by weighting together the inflation rates of over 650 different goods and services, using as weights the estimated expenditure on each item for a representative household. but where unpublished writings of j. m. keynes, copyright of the provost and scholars of king ’ s college, cambridge to whom i am grateful for permission to publish this extract. a reference to the letter appeared in skidelsky, r. john maynard keynes volume 1 : hopes betrayed, 1883 - 1920, macmillan, london, 1983, page 280. the official attendance on 13 september was 38, 575 ; the villa scorer was the incomparable clem stephenson, who may have lacked pace but whose passes were, according to contemporary observers, “ as sweet as stolen kisses ” ; and the ‘ most expensive ’ right winger for blackburn rovers was john “ jocky ” simpson who cost blackburn a record fee of £1, 850 when he was transferred from falkirk in 1911. do those prices come from? each month - on “ index day ” ( either the second or third tuesday of the month ) - around

i would like to return to four of these again today. strong frameworks for policy the first is the importance of strong, credible frameworks for economic policy. for monetary policy, this means a strong nominal anchor in the form of a medium - term inflation target. and for fiscal policy, it means a credible fiscal framework that deals with the medium term and the intertemporal budget constraint. since the early 1990s, australia has been well served by a flexible inflation target centred on 2 to 3 per cent. this target has successfully anchored inflation expectations and provided the organising framework for monetary policy decisions. we have seen the benefits of this anchor over the past year or so ; without it, we would have faced a much more challenging environment. at one point during my term, when inflation was low, there were calls to lower the target. and recently, some have called for a higher target, hoping to avoid the costs of disinflation. i have consistently argued against such calls. it wouldn't be much of a nominal anchor if the target was moved just because the tide was running in one direction for a while. people would rightly wonder what would happen when the tide ran the other way. having chosen a target, it is best to keep with it unless there is a compelling case for change, which there is not. for fiscal policy, an anchor is also important. governments face many demands on their budgets and when they borrow today, they need to be able to service that debt into the future. some countries have not dealt with this intertemporal aspect of fiscal policy very well and public debt levels have kept rising, storing up problems for the future. australia has done better on this front, but we are not immune to the pressures on the public purse and these pressures are growing. given this, a strong commitment to a fiscal framework that addressed the intertemporal budget constraint would help. a credible medium - term framework is also useful in the area of infrastructure investment. australia's growing population means that we need to keep investing in public assets. some years ago, i spoke about my concerns that we were not doing 3 / 7 bis - central bankers'speeches enough here, partly due to governments seeking to avoid taking on debt. more recently, my concern has been that we were seeking to do too much, in too short a time. a wellestablished framework, based on rigorous independent cost - benefit analysis, would help the country plan and sequence public investment. it would