The fight against inflation and the growing prominence of monetary policy (and the Reserve Bank) have been central features of economic policy in recent decades. This chapter begins in the early 1970s and examines the dynamics that followed the collapse of the post-war monetary order. The RBA's search for a stable monetary policy framework during the 1970s and 1980s was largely unsuccessful, although much was learnt along the way. Indeed, the 1980s was a baptism of fire as the government and the RBA searched for a path in a deregulated financial environment while attempting to control an increasingly wayward economy. The steep learning curve and economic gyrations of this period would have challenged any set of policy-makers.

As in many other economies, inflation began to rise in Australia in the early 1970s after the Bretton Woods monetary system broke down and the prices of oil and other commodities soared. Inflation was also driven by growing wage pressures, and by what at the time was a relatively loose or accommodating monetary policy. This combination was followed in the mid-1970s by a crisis of stagflation. Amidst what appeared to be a failure of the post-war economic order, politics shifted to the right and neo-liberal policies were embraced.