An increase in the terms of trade means that the received for has increased relative to the prices paid for . Assuming that the higher terms of trade has occurred because of higher commodity prices, then it results in higher export and higher incomes received by commodity exporters (typically mining companies). These higher incomes then flow through the economy and ultimately lead to an increase in aggregate demand and demand pressures. To the extent that it leads to an increase in the rate of inflation above the RBA’s 2-3% target range, it makes it more difficult for the RBA to achieve its goal of price (i.e. low and stable inflation)