Using data from the Australian Bureau of Statistics (ABS) http:
www.abs.gov.au/ collect information on unemployment and inflation rates for Australia over the period 2001 to 2016, inclusive. Employ annual data. Be explicit and define and provide sources for the data obtained.
Plot on a single diagram the relationship between inflation and unemployment, measuring inflation on the vertical axis and unemployment on the horizontal axis. Comment on whether any relationship exists between these variables and any implications of your findings.
Data for unemployment and inflation is collected from the official website of Australian Bureau of Statistics (ABS) for the time period of 2001-2016.
Unemployment and inflation rate are two major variables to evaluate the health of any nation. Any economic expansion or contraction is reflected on unemployment data. During recession phase of business cycle, the economy experiences fall in output as a result increase in unemployment. The inflation and unemployment usually follow a trade -off that was first observed by British economist A.W Philips (1958). The negative trade off between unemployment and inflation can be represented by the downward sloping curve known as Phillips curve. It is important to note that though the negative relation exists in the short run, there is no such trade off observed in the long run. The key reason is LRAS curve is vertical in the long run. (Mankiw, Principles of Economics, 2014)
Now let us analyse the unemployment and inflation data for Australia. Australia is the only country that did not experience recession for long 26 years. The resource rich economy holds the record of longer time of recession free economic growth. The diversified economy, sound macroeconomic policies and strong financial system are some of the key factors that has largely contributed to such a remarkable achievement of Australia. Despite the unprecedented economic growth, labour market data especially the unemployment rate is not much encouraging in Australia. According to the data released by Australian Bureau of statistics, the unemployment rate for Australia is found to be 5.69% in 2016 which is below the full employment level. Australia is not operating at its potential level. The unemployment rate considerable varies across the states with the highest rate prevails in Victoria and Tasmania. Though there is job growth, the trend on unemployment rate is also on rise. Stagnation of wage growth is another growing concern for Australia. (AAP, 2018)
As far as inflation rate in Australia is considered, the rate is found to be low. Australia has the longest period of low inflation. RBA has opted for inflation targeting monetary policy and kept the inflation rate target at 2-3% level. But the economy failed to achieve the target and inflation rate hovered around below 2% for last two years. Economists are on the fear that Australia is cu
ently locked with low inflation and low wage growth. Actually, Australia is experiencing weak inflation for long and there is no immediate sign of upswing of inflation rate at this stage of economic recovery. Inflation rate is unevenly distributed across the country. Since the inflation rate fails to reach the targeted level, RBA does not show any inclination to change the cash rate. Increased competition at the global and the nation level and changes in AUD are some of major reasons behind longer persistence of weak inflation. If the wage growth remains low, the inflation rate is less likely to rise in immediate future. (Hutchens, 2018)
We have plotted the graph for unemployment and inflation and shown in the above chart. Unemployment is measured along the X axis and inflation is measured along the Y axis. Though it is little hard to figure the...