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The probing questions raised by many!

the following offers answers and explanations.

For some, the recent inflationary pressures came as a surprise, an unknown phenomenon while for others, those who experienced high inflation in the early 70’s to late 90’s, it was a return nightmare. Like me you may recall those challenging times and bad dreams.

So, what is Inflation!

‘Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices. Typically, prices rise over a given time.’ This includes commodities such as food grains, fuel, transport and utilities like electricity. And not to forget services for healthcare, entertainment, and labor.

It will be experienced and viewed differently, positively or negatively, depending on your circumstances, and rate of change.

The Consumer Price Index (CPI) is the indicator used to measure the percentage change in the price of a basket of goods and services consumed by households.

Simply said, the economic cycle and the interest rate cycle are intertwined and in theory, interest rate changes should follow the economic cycle. For example, The Reserve Bank raise interest rates to slow down the economy and avoid inflation when the economy is growing rapidly, and inflationary pressures are increasing. The situation we are currently experiencing.

What does it mean to Households, Consumers, Businesses

Cost-of-living pressures, rising prices of everyday goods and services, and declining purchasing power of the dollar are putting a strain on average households, stretching their budgets. As monetary policy responses kick-in, home buyers, mortgagees face increased interest rates and repayment, while renters have higher costs as housing investors pass on their borrowing expenses. Housing costs are at a new high for a number of reasons, including limited stock (demand and supply tensions).

Is inflation something new? No!

Australia’s inflation history since the introduction of the CPI can be broken down into four main phases: (i) The initial post-war recovery and the ‘Korean War boom’; (ii) the disinflationary period from 1953 to 1972; (iii) high inflation from 1973 to 1990; and (iv) the period since the introduction of inflation targeting by the RBA.

Snapshot: the Inflation Rate in Australia averaged 4.89 percent from 1951 until 2023, reaching an all time high of 23.90 percent in the fourth quarter of 1951 and a record low of -1.30 percent in the second quarter of 1962.

What does it look like!

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This time last year we covered the burning issues of cost-living-pressures, high inflation and consumer confidence!

12 months on, here we are still battling and countering the effects of price increases that are impacting our lives. Discretionary spending now is the way forward for many. This habit is reflected in a recent headline, 'cost of living bites down on West Australians' with comments 'the community is broadly attempting to rein in spending, or at least choosing where to spend their money' (West Newspaper). Yes, whether consumers or small Business operators, no one can escape these pressures.

What's changed?

The good news is our inflation has been coming down, a sign that tighter financial conditions have dampened upward pressure. But be aware of the Reserve Bank's position, announcing it is ready to act as needed. Increase or decrease, it's a wait and see, a situation keeping many on edge. Not so happy are mortgage holders arguing they are still hurting by the increased interest rates and struggling with everyday expenses.

For others, although household budgets are under pressure, and some travel plans are on hold, many are still willing to enjoy their treats, taking staycations, Gym memberships, grabbing that morning takeaway coffee and dining out. Smashed avocado is still on the menu! and entertainment, live concerts are also popular. The summer holiday break and new years resolutions seen as driving this spending.

This trend supports the more resilient industries, hospitality, beauty and fitness. These Business in return provide employment opportunities for a mostly casual workforce, with many of these taking on more than one job to ease household pressures. This now described as the 'poly-employment' trend.

Other good news!