Cost of living is still up, so let’s break down what’s going on

We find ourselves in this ongoing state of high inflation in the world, which means everything is more expensive than it previously was. 

Any trip out is now coupled with an underlying feeling that you might overspend, that the weekly budget is suddenly under a lot more pressure! 

How do we gauge the pressure levels, exactly? Well, the consumer price index (CPI) can help. It’s a basic measure of inflation in Australia and this number has spiked over the past two years. For example, it jumped by 8% from the final three months of 2021 to the end of the same period in 2022. 

In December of last year, the CPI number hit about 8% overall, which is the highest it’s been since 1980. There are a range of factors that have caused this, but in a nutshell, the pandemic period brought about extraordinarily high demand while supply shortages and costs hit. That’s a bad combination in economic terms. 

So how does it translate to everyday life? Is every product or service we use now suddenly pricier? 

Yes, there are numbers that indicate this (which I’ll get to shortly), but even simple anecdotal scenarios show that regular expenses are indeed under fire. For instance, filling up my car had been about $65 most days when things were normal but it’s now sometimes $90 and on occasion breaks $100. Thank goodness I’m not a postie or a tradie!

The supermarket is another one that hits you where it hurts, as they jack up the costs of everything from dairy products to bread. Don’t get me started on cheese.

And paper is another basic household, work and school item that is now very expensive because of higher energy and shipping costs, but also because pulp production itself has suffered huge price spikes since the stunted pandemic period.

Getting into the details of higher costs

Over a month or even a three-month period, inflationary price hikes are a little small and therefore their impact is tough to get a read on. However, if we go on a yearly basis the weight of inflation is easier to see. 

For example, let's compare the jumps between the fourth quarter of 2021 and 2022, which shows not only rises in housing costs but food and in recreational activities. Food and non alcoholic beverages as one category has risen in price by 9% in the space of a year, clothing and footwear is up by 5%, while transport has climbed by 8%, according to the Australian Bureau of Statistics.

Those are three of the most typical expenses for any household and so surely are affecting many Aussies – especially as school returns. 

The numbers also support our specific dismay in the supermarket. For example, in the same year on year timeframe, bread and cereals were up 12%, dairy goods were up 15%, meat and seafoods were up 8%, and fruit and vegetables jumped 8.5%. 

And of note is that meals out and takeaway have also been impacted, which possibly doesn't come as a surprise to many. Valentine’s Day will be at Maccas at this rate!

So, what’s behind these food-related increases?

Well, in its latest report the ABS said that these strong price rises reflected “elevated input costs” for farmers and producers of packaged goods – which is basically the costs of production. The ABS added that strong Christmas demand also played a role. 

January has largely been the same. ING’s researchers say that food price moves were a big shock in January’s data, mostly because of uncontrollable events such as poor weather and flooding. 

That said, the overall hikes in food and beverage were said to be offset by some declines in alcohol and tobacco prices. So, good news for some. 

There is however hope that inflation will curtail eventually but perhaps not until further interest rate hikes are made. Many experts predicted increases of 25 basis points two more times to take the cash rate ro 3.6%. But even that might not be enough, according to some, including ING. 

They at least suggest that in a few months the ‘one-off’ and ‘seasonal’ shocks will end and we might get some breathing room. Demand for goods is expected to drop this year and the supply of some things will return to normal, which you would think might put an end to this ‘passing on’ of higher prices. 

In the meantime, be sure to stick to your budget and try to park some savings where you can for when you’ll need it most. 

At Mozo we also offer a variety of savings ideas in our Family Finances hub that might help:

• How to tackle money pressures as financial hardship likely in 2023

• Wuh-oh! Expensive Christmas? Here’s how to triage your budget for 2023

• The Chinese New Year: Renewing your financial health in 2023