The level at which prices are rising or falling in an economy can impact the exchange rate, the interest rate as well as expected returns in capital markets. Headline inflation measures the change in prices on a basket of goods—when the more volatile items of that basket are removed, we have 'core' inflation. This measure of inflation gives a better reading on the underlying level of demand in an economy and is what the Reserve Bank of Australia (RBA) looks at when determining how to set monetary policy. The RBA targets an underlying level of inflation of between 2% and 3%. The right hand chart breaks down the forces contributing to the higher rates of inflation in Australia more recently.