Since 1993, The Reserve Bank of Australia (RBA) has targeted monetary policy toward an average inflation rate of between 2% and 3% a year over the medium term. This is considered sufficiently low that it will not distort economic decisions in the community. The inflation target provides discipline for monetary policy decision making in Australia, and serves as an anchor for private sector inflation expectations.

As at the March quarter 2008, Australia's annual inflation was 4.2%.  In April 2008 (media release 2008-04), the RBA noted that the overall tightening in financial conditions since the middle of 2007 is working to foster the moderation in demand growth that will take pressure off inflation. The RBA anticipate that inflation should decline over time, provided that demand slows as expected.

Some major economies continue to experience lower rates of inflation than Australia. The policy for these countries has generally been to maintain very low interest rates to stimulate domestic demand and investment. Australia was the first major economy to begin lifting interest rates with rises in late 2003 in response to the strength of domestic demand.  The cash rate target at April 2008 is 7.25%.