Inflation is a complex issue, one that affects businesses and households differently. With the current cost of living crisis in Australia, the situation appears to be moderate when compared to our historical peaks and the international experience, especially the extreme conditions in some other countries.
Trying to understand the nuances of inflation – what defines good, bad and ugly inflation – is important for effecting government policy making. Maintaining price stability is crucial in protecting household finances and promoting economic stability for all.
The cost-of-living crisis
The ‘cost-of-living crisis’ or ‘inflation crisis’ has taken centre stage in recent times in Australia and overseas, for good reason. Inflation is by no means a new phenomenon; it is well known, but at the same time it is not always as well understood. Australia has been living in a relatively low inflation environment for ~35 years, we’ve had it good for quite a long time.
However, this cost-of-living crisis, off the back of a post pandemic increase in inflation, is serious and has now hurt many households – but not all to the same extent. For many the cost-of-living crisis is a real challenge, but when considering history and compared to the range of experiences internationally, you may come to the conclusion that overall we’re doing relatively OK.
The main hurt property owners may be experiencing (as well as the increase of every bill, utility and insurance) is of course interest rates.
There are many intricacies of inflation, drawing lessons from history and the broader international experience, but how the Reserve Bank use interest rates to maintain price stability is highlighted in recent times and the topic of much discussion. This also provides insights into Australia’s current economic landscape.
How it’s impact can be lightened
It’s important to understand that inflation in different goods and services stems from different factors – so one rate, or policy instrument is a very blunt tool to use.
It is possible in many situations that a household can change the basket of goods and services they purchase to lessen the impact of inflation, but not all people are able to negotiate or change their income. Imagine a retired person living alone in a home they own, compared to a young family with a mortgage. Clearly the impact of inflation can be quite different.
What can be done differs from household to household, however having a plan or seeking to lower regular costs in your budget can help. It’s unlikely to improve quickly, so learning to adapt sooner rather than later will set you up better for your future.
It’s not easy to navigate
Inflation is a complex issue, with the current cost of living crisis in Australia, the situation appears to be moderate when compared to our history.
Trying to understand the nuances of inflation – what defines it and the significance of price stability and being adaptable is important. This is why it is worthwhile to try and control inflation!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.