We all understand the effects of inflation. We are seeing the increase in prices when we visit the supermarket or go out to dinner. But is inflation higher for some households?
Inflation peaked at 8% last year, has averaged over 5% for the past 2½ years, and the RBA doesn’t expect inflation to return to its 2–3% target until late 2025. We have a significant inflation problem in Australia.
High inflation has seen significant declines in real wages and real incomes. But not all prices have increased by the same amount, for example over 2½ years the cost of holiday travel and accommodation increased by 172% but the cost of public transport fares fell by 20%. Given varied price increases and differing spending patterns of households, this raises the question: have some households escaped high inflation? The short answer is no, no one has escaped, however, there may be differences in how the impact of inflation is felt in different households.
The one household that has felt the effect of higher inflation is those who have mortgages. Changes in interest rates have resulted in a very large increase in expenditure. Over the last 2 ½ years, cumulative inflation for these households has been almost 18% given the interest rate rises.
In comparison, retirees have experienced cumulative inflation of 14% over the same period. It is still high, however, results in a different experience.
Is there end in sight?
The short answer is no. We will face high inflation for the next couple of years. In response, the RBA will continue to raise interest rates to impact inflation as they do not feel the previous rate rises have had an impact as yet.
What can I do?
Don’t panic! It is difficult to watch your spending power eroded, however, we can assist you with budgeting, ensuring you investments are providing sufficient income and other measures.
Contact our office on 1300 014 368 to discuss your personal position today.
