Goal Price Stability occurs when there is low inflation, (2-3%) , this helps avoid:

• the reduction of household expectations, and purchasing power (can reduce AE - Consumption), which is against fundamentals of Keynesian Model.
• Avoid the need for Interest Rate increases by RBA. Increase in I.R causes a Reduction of Aggregate Expenditure according to Keynesian model)
• Inflation feeds into lowering business expectations, decreasing business expectations thereby reducing long-term capital investment, encouraging non-productive investment.
• Helps avoid non-productive speculative investment in things like property and antiques that arise from people trying to find hedges against price increases.
• Inflation causes structural change, e.g. capital-for-labour substituition when wages rise faster than productivity, “pricing themselvs out of the job”.
• Avoids the burden of inflation, whic primarily impacts low income earners.

Price Stability in-turn helps encourage;

• Consistent household expectations & purchasing power
• A low interest rate that reduces the Opportunity cost of consumption.
• Maintain International Competiveness in the international market, Instable prices (high inflation) higher than those overseas erode competitiveness.

Indicator Consumer Price Index (CPI) Formula