##lator, over longer time spans, followed a similar path ( table 1 ). table 1 decadal average inflation 11. notwithstanding the long - run lead - lag relationship, the divergence between wpi and cpi has accentuated since early 2008 ( chart 2 ). chart 2 divergence between wpi and cpi inflation 12. this could be attributed to the following factors. first, the price of minerals and metals went up sharply during may – june 2008 and then fell precipitously reflecting global trends. since metals and alloys do not form a part of the cpi group, this accentuated the divergence between cpi and wpi. second, there was a similar trend as metals in crude prices which had a larger influence on wpi than cpi. third, price of services – such as, medical care, education, recreation and amusement, transport and communication and personal care and effects – in cpi - iw showed a significant inflation of over 8 per cent. it may, however, be indicated that cpis recorded very similar trends as the food component of wpi despite the divergence of the overall indices during the recent period ( chart 3 ). chart 3 co - movement of inflation rates based on wpi ( food ) and cpis new wpi series 13. following the recommendation of the working group for revision of wholesale price index ( chairman : prof. abhijit sen ), the base year is being updated to 2004 – 05. the proposed basket of manufactured products in the new series would cover significantly a higher number of commodities and would integrate items from both organised and un - organised manufacturing sectors. while this would improve coverage, the challenge is to ensure collection of price data on a regular basis so that the quality could be maintained. the revised wpi basket, however, would not include services prices. an expert group ( chairman : prof. c. p. chandrasekhar ) is looking into process of developing a service price index. in order to enhance the representativeness of wpi index, it is important to expand the coverage to include services. producer price index 14. even when we have a revised wpi, we would still not have a producer price index ( ppi ). the ppi covers price changes faced by the producers on primary, intermediate and finished goods and services ready for the market. the primary difference between the wpi and the ppi is, in addition to the coverage, that the wpi reflects changes in the average cost of production including mark

philip lowe : low inflation in a world of monetary stimulus speech by mr philip lowe, deputy governor of the reserve bank of australia, to the goldman sachs annual global macro economic conference, sydney, 5 march 2015. * * * i would like to thank marion kohler for excellent assistance in the preparation of these remarks. accompanying charts can be found at the end of the speech. i would like to thank goldman sachs for the invitation to speak today. it is a pleasure to be here and be part of your annual macro economic conference. it is perhaps stating the obvious to say that an important part of the macroeconomic environment is monetary policy. the actions of central banks have material effects on financial markets and can shape macroeconomic outcomes. indeed, over recent decades it became widely accepted that monetary policy was the primary macroeconomic stabilisation tool and that monetary policy could effectively manage the business cycle. from today ’ s perspective, the picture looks a little different. in many ways, the current global monetary environment is quite extraordinary. there has been unprecedented money creation by the world ’ s major central banks. policy interest rates are negative across much of europe. long - term government bonds yields in most advanced economies are the lowest in recorded history. lending rates for many private sector borrowers are the lowest ever. and some banks in europe are now charging customers to accept deposits. in earlier eras, one could have predicted with some confidence that this type of monetary stimulus would have created a boom in economic activity and subsequently a substantial lift in inflation. yet, today, many parts of the world continue to operate with considerable spare capacity, inflation rates are low almost everywhere and inflation expectations have generally declined, not increased. so this afternoon, i would like to talk a little about these very unusual times. i will begin by showing a few graphs that summarise the current global monetary environment. i would then like to explore some of the possible reasons why we are in this environment before addressing some of the implications of all this for australia. the current global monetary environment so first, to the facts. since the global financial crisis, we have seen an extraordinary increase in the size of central bank balance sheets. this first graph shows the size of the combined balance sheet of the us federal reserve, the bank of japan and the european central bank ( graph 1 ). this combined balance sheet has increased from the equivalent of us $ 3½ trillion in early 2007 to almost us $ 10 trillion today, and a further substantial rise is in prospect.