ricardian ambivalence has a great piece:
First of all, it seemed to confuse inflation — a general rise in the price of goods and services — with rising prices. They are not the same thing.
Inflation is not an increase in the cost of living. At least not the sort of inflation that monetary policy might control.
Central banks control the money supply, and the inflation we mean when we talk about policy is a decrease in the value of money due to its excess supply relative to the production of goods and services. Money and credit aggregates are growing very slowly (even more sub-trend than real output) so I cannot see signs of an excess supply of money as a cause of inflation.
This is one of my great bug bears – inflation is a monetary problem.
The confusion comes about through measurement. The CPI measures changes in prices. Some price changes are due to inflation, others due to changes in scarcity, and then public policy distorts prices too. Okay. What the RBA does is attempt to unravel those price changes, and then target the inflation. The devil is in the detail – in how the RBA unravels the price changes to identify the inflationary component.