BUSN20019 Professional Project: Inflation & Investment in Australia

This project investigates the influence of inflation on investment behavior within Australia, focusing on the period from 2007 to 2017. It explores the relationship between inflation rates and investment spending, considering the Reserve Bank of Australia's inflation targets and the broader economic context. The study uses secondary data from sources like the Australian Bureau of Statistics and employs correlation analysis to determine the impact of inflation on investment decisions. The research aims to determine current investment trends, examine inflation's role in investment decisions, and provide recommendations for improving investment behavior in Australia. The findings contribute to a deeper understanding of the interplay between macroeconomic factors and investment strategies in the Australian economy.

BUSN20019: Professional Project
“Project Title - Influence of Inflation on Investment behaviour in
Australia”
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Executive Summary
The main purpose and aim of this project study are to examine the impact of global inflation
among the Australian investors. Inflation is known as the rate at which the prices of products and
services increase and thereby, the power of money decreases (Sousalis, 2017). Australia’s
Reserve Bank’s policies and procedures on the inflation have aim to keep it low which in
between the average of 2-3% (Sousalis, 2017). This research study has been conducted in order
to identify various impact of inflation on the investment behaviour in Australia. For gaining in-
depth knowledge and skills the stats of past 10 years starting from 2007 to 2017 has been stated
in the reported study.
The stats presented in project study reflect over the co-relation in between the rate of inflation
and its significant impact on investment spending in Australia. The evidence and facts conducted
by early researches have also been considered in the project study with the help of literature
review. A secondary source of data is also collected in the research study which highlights the
information gathered from Australian Bureau of Statistics.
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Table of Contents
Executive Summary.........................................................................................................................2
Chapter 1:- Introduction..................................................................................................................4
1.1 Project Title............................................................................................................................4
1.2 Background of Study.............................................................................................................4
1.3. Statement of Problem............................................................................................................4
1.4 Project Aims and Objectives..................................................................................................4
1.5 Research Question..................................................................................................................5
1.6 Project Justification................................................................................................................5
Chapter 2 – Critical Literature Review............................................................................................6
2.1 Australian Inflation Target.....................................................................................................6
2.2 Relationship in between savings and investment in Australia...............................................6
2.3 Inflation Trend in Australia....................................................................................................7
2.4 Theoretical Framework..........................................................................................................8
2.5 Hypothesis............................................................................................................................10
Chapter 3 – Research Methodology..............................................................................................11
3.1 Data Collection Methodology..............................................................................................11
3.2 Use of Secondary Source of Data........................................................................................11
3.3 Sample Size and Research Design.......................................................................................12
3.4 Data Analysis.......................................................................................................................12
3.5 Pearson Correlation Method................................................................................................12
3.6 Validity and Reliability of Data...........................................................................................12
Chapter 4 – Data Analysis and Findings.......................................................................................14
4.1 Data Analysis.......................................................................................................................14
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4.2 Descriptive Statistics............................................................................................................14
4.3 Correlation Analysis............................................................................................................17
4.4 Research Findings................................................................................................................18
Chapter 5 – Conclusion.................................................................................................................19
5.1 Conclusion...............................................................................................................................19
5.2 Limitation.............................................................................................................................19
5.3 Recommendation.................................................................................................................19
References......................................................................................................................................20
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Chapter 1:- Introduction
1.1 Project Title
The topic of my project study is “The Influence of Inflation on Investment behaviour in
Australia”.
1.2 Background of Study
The Australia’s inflation target is aimed at keeping consumer price inflation in between 2 – 3%
on an average. This is so because there is a significant impact of change in Consumer Price Index
(CPI) on the investment decisions within the Australian economy (Reserve Bank of Australia,
2012).
1.3. Statement of Problem
The investment decision is majorly dependent upon the index rate of goods and services
prevailing in the economy. It has been analysed from the researches and studies that inflation has
a significant impact on investment spending. Furthermore, the Australian economy is considered
to be strongest economy across worldwide. However, due to increase in global competition and
tremendous investment opportunities the CPI has a great role in such type of decision (Reserve
Bank of Australia, 2012).
1.4 Project Aims and Objectives
The main aim of this project study is to analyse the impact of inflation on the investment
behaviour in Australia.
Objectives
 To determine the current investment trends in Australia.
 To examine the role of inflation in investment decision within Australian economy.
 To provide recommendations for improving investment behaviour in Australia.
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1.5 Research Question
Question – Does there is a perfect co-relation in between the inflation rate and investment
behaviour in Australia?
1.6 Project Justification
Though, I am pursing Master of Professional Accounting and is a student of MPA having an
incredible interest in accounting and finance. I have dreamt of my career perspective in both of
these two areas only. The project study help in understanding the wider perspective of
investment opportunities and an inflation rate which is crucial when it comes to globalization.
The project will assist me in getting deeper knowledge and experience about the correlation that
exists in between both of these variables.
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Chapter 2 – Critical Literature Review
2.1 Australian Inflation Target
According to the views of Reserve Bank of Australia (2018) it is analysed that the Reserve Bank
uses of inflation rate targets in order to attain its goals relating to price stability, prosperity,
employment and others. The Australian government has been setting its CPI in between 2-3
percent so that it can capture the price change for the products and service which household
purchase and has been independently represented by the Australian Bureau of Statistics (Mandell
& Klein, 2009). The Reserve Bank has adopted the inflation target in the early year of 1990s.
The figure stated below reflects annual CPI inflation rate in the subsequent years.
Figure 1: Annual CPI Inflation
Source: (Reserve Bank of Australia, 2018)
2.2 Relationship in between savings and investment in Australia
In the words and opinions of Bishop & Cassidy (2012) he claimed that both of savings, as well
as investment, has been intended to be high as share in GDP (Gross Domestic Product) in
Australia. In comparison to other developed economies, the saving and investment have a
maximum contribution in Australian GDP. It is generally viewed that the investments needed to
be greater than savings but in Australia, there has been a tradition of sizeable current account
deficit. However, the amount of this deficit is intended to be decreased in past few years and
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there has been an increase in savings (Mandell & Klein, 2009). The statistical figure represents
co-relation in between savings and investment in Australia.
Figure 2: Savings and Investments
Source: (Bishop & Cassidy, 2012)
2.3 Inflation Trend in Australia
As per the ideas of Kumar, et. al. (2012), Australia is sooner expected to each low inflation rate
with the help of effective and efficient monetary policy and fiscal policy made by the Australian
government. It is evident that till many years the Australia economy has been suffering from the
unstable market trends and investment opportunities due to the high inflation rate. However, with
the integration of appropriate system and policies, it becomes effective for the economy in
present times; most of this credit goes to Reserve Bank of Australia who has focused on enabling
low inflation rates for almost 16 years. After, 16 years of challenge present Australia is known as
one of the world’s strongest economies. In addition to this, it is also observed that the Australian
inflation rate has been roughly being following Organisation for Economic Cooperation and
Development (OECD) since the year 2001. The graph and stats stated below help in clarifying
the respective thing more clearly and precisely. Inflation enables portraying the economic
condition of an economy and therefore, attracts the investors who seek for good investment
options (Kumar, et. al., 2012).
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Figure 3: Is the RBA in control of inflation, or are there other influences?
Source: (Sousalis, 2017)
As prescribed by the Fischer (2013) at one hand inflation leads to increasing the price of goods
and services and on the similar hand, it leads to decreasing the value of money. It is difficult to
predict the rate of inflation in near future about the relative products and services. Whereas, it is
studied that investment plays a crucial role in the growth and development of an economy. It
helps in creating employment, improves individual’s standard of living, and reduces poverty and
many others. The high rate of inflation negative impacts on the investment decision and resist
investors to invest funds in the respective country. Also, it leads to decreasing purchasing power
of individuals. Due to high inflation and low investment, it can lead to causing financial as well
as economic recession and less amount of spending in each and every sector of the country
(Fischer, 2013).
2.4 Theoretical Framework
The theoretical framework of this project study has been based on two variables such as:
Dependent variables
The dependent variable of project study is “Investment Behaviour in Australia”.
Independent variables
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The independent variable of the research study is “Rate of Inflation in Australia”.
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Dependent Variable
Investment Spending in
Australia (i.e. Capital
Expenditure)
Independent Variable
Inflation Rate (CPI)

Figure 4: Theoretical Framework
2.5 Hypothesis
On the basis of information analysed in literature review section which is aimed at understanding
of co-relation among inflation rate and investment behaviour in Australia, the following
hypothesis is been derived. Hypothesis is referred to as the set of assumption which is framed in
order to test the significance relationship in between both the variables (Barr, et. al., 2013). There
are basically two types of hypothesis which are:
Null Hypothesis (Ho) – The investment spending is not significantly influenced by the inflation
rate in Australia.
Alternative Hypothesis (H1) - The investment spending is significantly influenced by the
inflation rate in Australia.
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Chapter 3 – Research Methodology
3.1 Data Collection Methodology
The main aim and purpose of this project study are to investigate the relationship in between the
investment as well as inflation rate within the Australian economy. For the respective research
study, the descriptive, as well as exploratory research design has been used (Neuman, 2013). In
addition to this, the secondary source of data has been emphasised in this assignment where the
relevant and reliable data relating to the influence of inflation rate in investment behaviour has
been assessed in context of Australian economy. The descriptive statistics have been collected
from the authenticate sources such as Australian Bureau of Statistics, world development
indicators, World Bank, Reserve Bank of Australia and others.
In addition to this, the mixed approach has been targeted in the project study to collect the
information and data in which both the qualitative as well as quantitative data of research has
stated (Neuman, 2013). The data collected through quantitative and qualitative aspects highlights
on the rate of inflation, trends in investment, GDP, CPI, and others variables. The dependent and
independent variables formulated above helps in analytical representation of the respective
research topic.
3.2 Use of Secondary Source of Data
In this research study the secondary source of data has been used for collecting information
(Clark, 2013). The data is collected from various valuable and official websites such as:
 Australia Bureau of Statistics (http://www.abs.gov.au/)
 Reserve Bank of Australia
(https://www.rba.gov.au/publications/bulletin/2012/mar/2.html)
The data collected with the help of secondary sources is reflected through graphical and
statistical presentation (Clark, 2013).
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