Mr Stevens—So far, over 18 years, I think the average performance was not quite exactly 2.5 but it is very close, so we have achieved what we wanted to do.
Ms O’DWYER—I might very respectfully point to those figures, on average, over the last 11 years. Headline inflation on average since January 2000 in Australia has been 3.1 per cent per annum, which is well above the 2.5 per cent target. Core inflation has averaged at around three per cent during that period as well. It is a long period of time and it covers multiple cycles, obviously. My question is: why has the RBA failed to meet its inflation target over that period? And do you think that the average three per cent inflation rate over the last 11 years has affected the RBA’s inflation fighting credibility?
Mr Stevens—I do not think it has affected credibility. I think most measures that I would look at there look okay, in terms of credibility. We had a big inflation episode in late 2007-08 and we had to respond to that quite forcefully. We did and inflation has come down again after that episode to about 2¼ most recently on the core and about 2¾ with the tax impact doing a little bit of that work on headline CPI. It would have been even better if we could have totally headed off that surge in inflation, but we could not. People can criticise us for having rates too low back in 2005, 2006 and 2007 if they want to, I suppose, but we responded to those developments and inflation is back under control. That is the job we promised to do. An inflation-targeting central bank has to say at any point in time that, as best we can tell in anticipation, things are going to be consistent with our target, and if they start to move in a way that looks like it is not consistent then we should respond to that. We have been responding to that. We have a fair degree of confidence that, with the right policies, we will achieve a two-point-something performance on average into the future.
