As prices continue to spike, is now the time to start saving?

Prices up, savings key
Image: Getty

High inflation persists around the world, a tiring narrative for anyone simply trying to buy groceries or cover the bills. Why is it so hard to get control of this thing?

Petrol, rent and electricity prices have all been up in the last few months to the end of September and so it doesn't feel like the situation is improving for Aussie consumers.

The Australian Bureau of Statistics noted that a number of key costs for households have risen on the previous quarter, including for insurance, dental services and rents. And while eating out wasn't as expensive as in the June quarter, it remains high.

But that's the issue isn't it - even if inflation steadies or drops, prices remain high. It's not like we're suddenly getting discounts on these price hikes. I keep reading the phrase in news stories that the increase of such-and-such a cost wasn't as high in the last quarter. Great - but it still increased!

Why does inflation persist?

There are some economic factors that create this ongoing inflation challenge and they can get a bit confusing. So let's consider them briefly and simply here.

At the root of inflation is the supply - demand equation, where demand outpaces supply. But maybe the more interesting question is why does demand jump anyway?

Economists look at three factors - major disruptions to supply, more money in people's pockets and expectations. The first two seem self-explanatory but expectations are a bit of a funny one. I had to turn to the Harvard Business Review for a lowdown on this: it says that if everyone knows demand will increase because there's more money in pockets, then supply will increase to match it. This is logical. But an unexpected increase in demand or decrease in supply will apparently set off inflation, essentially tipping expectations on their head.

A further point here is that the Reserve Bank and other central banks around the world work at keeping expectations in check. They want to keep the mood steady, so to speak. This is a tricky task as we've seen though, because when global events unsettle the equilibrium of things, the economy operates at close to full employment and people keep spending even though the "cost of living" persists, the balance of supply and demand is harder to get a read on.

So here we are, approaching the end of 2023, still paying a lot for petrol in our cars, energy needed for our homes and many supermarket staples. Oh, and our rents and mortgage repayments only seem to climb. So the Reserve Bank will surely move interest rates up again, as one way to get the inflation situation a bit more under control. When rates go up, borrowing money costs more and the hope is that some of the heat of persistent demand is cooled. This would, in theory, put a firmer hold on price rises.

We'll see how that goes, but in the meantime, higher interest rates could present a better opportunity to save because as interest rates rise, savings rates should rise with them. There is a school of thought that parking money in a savings account during times of high inflation is counterproductive because put simply, many of the savings interest rates offered of late - typically hovering around 5% - have been lower than the inflation rate of 5.4% (as of October 31).

Yet in tougher economic times it's also sensible to adjust your thinking. Yes, a lot of stuff costs more, including abnormally pricey milk and cheese, and endlessly high petrol prices - but that's the very reason savings can matter. We don't have a handle on these price fluctuations, which also greatly impact our ability to afford a roof over our heads. So we need to think about the rainy day fund in case another price spike occurs and we're caught out. Where possible, stashing some of your money can offer some peace of mind that you can weather the storm.

And furthermore, more interest rate hikes should help savings rates go up too, while presumably, the inflation rate will begin to dip again. That's a good situation or at least a better one than we've seen this year.

If you're keen to compare savings accounts, you can start by reviewing a few of the best on the market below.

Compare High Interest Savings Accounts - last updated 25 June 2024

Search promoted savings accounts below or do a full Mozo database search. Advertiser disclosure
  • Savings Account

    5.35% p.a. (for $0 to $250,000)

    4.75% p.a.(for $0 to $1,000,000)

    Yes up to $250,000

    Bonus variable rate is available for the first four months.

    Competitive introductory variable rate for first 4 months (on deposits up to $250,000). No account keeping fees to pay. Multiple 2024 Mozo Experts Choice Award winner.

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    Savings Maximiser

    5.50% p.a. (for $0 to $100,000)

    0.55% p.a.(for $0 and over)

    Yes up to $250,000

    For customers who have an Orange Everyday account, deposit $1000 into a personal ING account, make 5 eligible transactions and grow their nominated Savings Maximiser account each month.

    Great variable rate every month when you grow your balance each month in addition to other eligibility criteria. No ING fees to pay. Save even more with ING Everyday Round Up. Mozo Experts Choice Awards Everyday & Savings Bank of the Year winner for 2024.^

  • Reward Saver Account

    5.25% p.a. (for $0 to $1,000,000)

    0% p.a.(for $0 and over)

    Yes up to $250,000

    Intro bonus rate of 5.25% for balances up to $1,000,000 for the first 4 months, reverting to 3.25%. Minimum deposit of $50 and no withdrawals.

    Introductory bonus rate for balances up to $1,000,000 for the first 4 months. Minimum deposit of $50 and no withdrawals. Start your account online in under 10 minutes and earn interest on balances up to $1,000,000 (T&Cs apply). No monthly account fees, helping you save smarter and faster.

  • PremiumSaver

    5.45% p.a. (for $0 to $250,001)

    1.50% p.a.(for $0 and over)

    Yes up to $250,000

    Increase balance by $200 by the end of each month

    Reward yourself with a higher rate for your good savings habits. Rabobanks’s PremiumSaver is simple - receive the maximum rate when you grow your balance by at least $200 each month (T&Cs apply). Plus, your savings help our Aussie farmers produce the food we love to enjoy.