How long will the cost of living crisis last and how to beat it

Following another rate hike by the RBA, you’re probably wondering the same thing that I am: when is this cost of living crisis going to end?

Unfortunately, the cost of living crisis is a multi-faceted problem with a couple of causes and, whichever way you look at it, it will be something that we’ll have to deal with for some time. 

However, Australia is well positioned in comparison to the rest of the world, and the May 2023 budget has shown this with increased revenue from high commodity prices. So, keep in mind that no matter how long the cost of living crisis lasts, there is always something you can do to get your money working for you.

RBA’s battle with inflation

Despite hopes that the Reserve Bank of Australia would continue its pause, May saw yet another rate hike in the cash rate to 3.85% with the RBA continuing its war to bring inflation within 2-3%. 

While inflation is one aspect of the cost of living crisis, rate hikes have also affected the average Aussie household due to the current debt levels. According to the Australian Bureau of Statistics (ABS), the average Australian household debt levels grew by 7.3 per cent to $261,492 in 2021-22 which has left many in a vulnerable position to rate hikes. 

So, getting inflation under control and the ensuing rate cuts that tend to follow are a big part of the so-called crisis. 

It’s with looking at the RBA’s Statement on Monetary Policy for May 2023 here, which has laid out its inflation forecasts with Consumer Price Index (CPI) inflation only expected to reach 3% by 2025.

As you can see from the forecast chart, the RBA has found consumer price inflation easing in the March quarter which has confirmed that inflation has passed its peak. Even though inflation is easing, the RBA’s goal is 2-3% inflation which means that there could still be further hikes - and household costs - ahead. 

Energy costs 

Another factor that makes the whole situation pretty complicated is the rising cost of energy, which the RBA suspects will contribute to inflationary pressures over the coming year. It’s not hard to see why, with a fleet of ageing coal fire power stations across the country and a lack of domestically reserved gas supply which has left many feeling their wallets drained from yet another rising cost.

Yet, over the long run, there is hope. With CSIRO and AEMO's GenCost 2021-22 report confirming wind and solar in Australia are currently the cheapest form of energy, in the long run, could lower. However, this is dependent on how fast the government moves to replace supply for the scheduled coal plant closures. 

How to survive the cost of living crisis

So, 2023 could continue to be a difficult year in regard to the cost of living crisis. However, as inflationary pressures start easing in the subsequent years, and the world economy begins to normalise, we should see cost of living pains decrease.

All this being said, and even though a lot of the cost of living crisis is due to factors outside our control, there are steps we can take to lessen the bite in the meantime. Some of these things are:

• Budget your spending & saving: Making a budget can be a great way to figure out where your money is going and it can help you to make frequent savings every payday. Try out Mozo’s budget calculator, it's free and easy to use so that you can easily start budgeting your income and expenses.
  

• Opening up a high interest savings account: One way you can get the rate hikes working in your favour is through a high interest rate savings account. At the current cash rate, a lot of banks have raised their interest rates on savings accounts with some going as high as 5%. 
  

• Refinance your home loan: If you’ve currently got a mortgage, it might be worth considering refinancing your loan for a better deal. Some refinancers offer cashback as part of their refinance package which could be useful for some refinancers. 
  

• Get a better deal on energy: If you think your energy bill keeps getting bigger, why not shop around? It’s easy to first check on your property’s tariffs, find cheaper plans or even to ask your current provider for a discount. 
  

Finally, saving money is integral to any cost-cutting budget. And while savings rates are good, a high interest savings account is worth considering. But not sure which savings account you need? At Mozo we have comparisons of high interest savings account providers so that you can find the one that works best for you.