The changing nature of inflation control in Australia

The paper conjectures that there has been a fundamental shift in the way the labour market interacts with the inflation generating process in Australia around the time of the 1991 recession. The results suggest that the short-term unemployment rate (STUR) constrains the annual inflation rate more than the overall unemployment rate (UR) and that the level of underemployment (UE) exerts a separate negative impact on the inflation process. It is clear that within-firm excess supply of labour is now an important disciplining factor on price inflation.