Official Consumer Price Index (CPI) statistics released in Australia this week show that inflation is accelerating, rather than “peaking,” on top of staggering price rises over the past year for food, petrol and other essentials, hitting working-class households by far the hardest.
According to the headline CPI figure, inflation jumped to a 33-year annual high of 7.8 percent in the December quarter of 2022, up from 7.3 percent in the September quarter. The index for “non-discretionary” spending rose even more sharply, by 8.4 percent.
Working-class households are experiencing enormous hardship, and the greatest cut to living standards since World War II, as the Reserve Bank of Australia (RBA) and the Labor government, assisted by the trade union bureaucrats, insist that real wages must continue to fall.
As is happening worldwide, the price surge is led by the most basic items that people need to live. Dairy and related products were up 4 percent during the last quarter of 2022 and 14.9 percent over the year. Bread and cereal product prices climbed by 3.4 percent in the three months to be up more than 12.2 percent in the year. Fruit and vegetables fell by 7.3 percent in the December quarter, but were still up by 8.5 percent over the year.
Non-durable items—household consumables like toiletries and detergents—climbed at 2.3 percent during the quarter, and at an annual pace of 12 percent. Automotive fuel prices increased by a little over 2 percent in the three months to December, but were 13.2 percent higher than at the end of 2021.
Housing costs rose by 10.7 percent over the year. That included rents, which lifted by 4 percent, the highest rise since 2012. Economists predicted rental inflation would continue to climb.
The acceleration in the cost-of-living crisis was further revealed in the monthly (rather than quarterly) CPI indicatorfor December.It rose 8.4 percent in the 12 months to December, following annual rises of 7.3 percent in November and 6.9 percent in October.
While the media focussed on a 13 percent jump in holiday travel and accommodation in the December quarter—to distract attention from the impact on food and energy—electricity prices also rose sharply, up 8.6 percent in those three months alone.
Much bigger energy price hikes will occur in 2023, despite token price caps on wholesale electricity and gas introduced by the Labor government in December. But Treasurer Jim Chalmers, while yet again pretending sympathy for “Australians doing it tough,” quickly insisted that even the small promised bill rebates for small businesses and low-income households would not start until later in the year. He peddled the illusion that inflation may have peaked.
However, the RBA’s preferred measure of “underlying” inflation, which removes “volatile” items such as food and petrol, jumped from 6.1 percent to 6.9 percent in the December quarter, much higher than the central bank’s prediction of 6.5 percent.
Chalmers’ contemptuous response epitomises the demand of the ruling class—the financial and corporate elite and its governments—that the working class must continue to be made to pay for the economic crisis gripping global capitalism. Labor’s fraudulent “a better future” slogan for last May’s federal election is a distant bitter memory.
Inflation has been outstripping workers’ wages at a record rate for more than a year—with the union officials policing the biggest cuts to real wages. In the September quarter of 2022, union-negotiated enterprise agreements delivered average nominal annual wage rises of just 2.6 percent, compared with 3.1 percent in non-union deals, according to the most recent data available from the Department of Workplace Relations.
That is, union agreements are imposing supposed pay “rises” that average less than a third of the soaring cost of living. This is in line with the call by RBA governor Philip Lowe, backed by the Albanese government, for wage rises to be kept lower than 3.5 percent.
That is on top of more than a decade of wage cutting. Real wages have fallen to below the level of June 2009, which was during the global financial crisis of 2008‒09.
That underscores the reality that wages are not the cause of the inflation that is devastating working-class households in Australia and internationally. Instead, the roots lie in the capitalist profit system and the US-led drive to war.
Profit-gouging by food and energy conglomerates, exploiting the US-NATO proxy war against Russia in Ukraine, is compounding the inflationary spiral caused by years of governments and central banks pumping trillions of dollars into the financial markets—ever since the global financial crisis—and the ongoing global supply chain problems created by governments letting the COVID-19 pandemic rip for the sake of profit.
Oxfam’s recent global inequality report shows that “95 food and energy corporations more than doubled their profits in 2022, driving major inflation in Australia and around the globe and leaving millions struggling to feed themselves and their families.”
Nevertheless, the big banks and financial commentators have declared that the RBA must further hike interest rates, like its counterparts in the US, the UK and the EU, in order to prevent a supposed “wages-price spiral.”
Commonwealth Bank head of Australian economics Gareth Aird said the outlook for wages was a “key risk” to his bank’s official cash rate forecast peak of 3.35 percent. Similar warnings were issued by UBS Australian chief economist George Therenou and KPMG chief economist Brendan Rynne.
An Australian Financial Review editorial noted that real wages had already fallen “a steep 4 per cent or so through 2022,” but any pegging of wages to inflation would “simply force the central bank to keep interest rates higher for longer in order to squeeze prices growth out of the economy.”
Money market representatives are either predicting or canvassing three more RBA rate rises in 2023, on top of the eight in 2022. That would lift the official cash rate to close to 4 percent. ANZ senior economist Catherine Birch said the CPI result “cements” another rise in the official interest rate at the RBA’s first meeting of 2023 on February 7, taking it to 3.25 percent. Both the ANZ and Westpac, two of the country’s four biggest banks, are forecasting an RBA rate of 3.85 percent by May.
This interest rate “shock”—intended to “squeeze” the economy into a downturn and higher unemployment—will intensify the financial stress confronting millions of working-class homebuyers.
Until last May, the RBA kept rates at a record low of 0.10 percent, in order to pump cheap cash into the hands of business during the pandemic. It promised homebuyers that it would not lift the rate until 2024.
Now a “fixed rate cliff” has begun. About $400 billion worth of fixed rate loans are expiring in 2023 after being taken out on the basis of the previous near-zero rates. RateCity, a company that monitors home loans, estimates that typical fixed-rate borrowers will have to pay about $2,700 more a month. Its calculation is based on a borrower coming off a two-year, 1.92 percent fixed mortgage rate onto a revert rate of 7.16 percent.
Of the $2.1 trillion in home loans, the RBA itself says about 35 percent, or $735 billion, is fixed rate and 65 percent of these are due to expire by the end of 2023. For all the central bank’s claims that “most” borrowers will be safe because of savings “buffers,” the ruling class is intent on inflicting financial misery on millions of low-income homebuyers for the sake of the capitalist economy and for the benefit of the wealthy.
Social inequality is already accelerating. Oxfam reported this month that Australia’s 42 billionaires have a combined wealth of close to $236 billion—61 percent higher than before the COVID-19 pandemic began. This is intensifying a longer-term trend. Oxfam said the richest 1 percent of Australians had accumulated 10 times more wealth than the bottom 50 percent in the past decade.
An immense social crisis is developing in Australia, as it is globally. Major working-class struggles have broken out over the past year against the increasingly unbearable conditions, not least among nurses, health workers and educators.
For these struggles to succeed, however, there must be a conscious break out of the political and organisational straitjacket of the totally pro-capitalist Labor government and unions. That means building rank-and-file committees, independent of the unions, and building a new socialist leadership in the working class to overturn the entire failed private profit system.
FAQs
What happens when inflation increases Australia? ›
The Impact of Inflation on Everyday Australians
The higher costs of doing business have been passed onto customers, leaving everyday Australians materially worse off. The problem is exacerbated stagnant wages, which have been decreasing slightly or remaining the same for the past five years.
Annual inflation as measured by the Consumer Price Index (CPI) has increased from a little below 2 per cent in the years immediately prior to the pandemic to around 8 per cent at the end of 2022. Prices have risen significantly for many of the goods and services that people buy.
What happens to the cost of living when inflation rises? ›In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.
Is Australia having a cost of living crisis? ›Australia's cost of living crisis WORSENS with inflation hitting a new 'unacceptable' 32-year high - making another interest rate rise within weeks almost a certainty. Australia's cost of living crisis has worsened with inflation hitting a new 32-year high of 7.8 per cent.
What does US inflation mean for Australia? ›So, if US inflation rises, expect Australia's figures to increase too. The value of the Australian dollar worldwide will also change and this, in turn, will affect the real-time dollar value of global goods and services.
Why is the cost of living so high in Australia? ›So why is the cost-of-living in Australia so high? One of the major reasons is inflation. A measure for household inflation, the Consumer Price Index, or CPI, increased by 2.1% in the first quarter of this year and 5.1% annually, according to data compiled by the Australian Bureau of Statistics (ABS).
What is the Australian government doing about the cost of living? ›From 1 January 2023, the Government will decrease the maximum co‑payment under the PBS from $42.50 to $30 per script, a 29 per cent reduction. Each year, this will save around 3.6 million Australians more than $190 million in out‑of‑pocket costs.
How much has cost of living increased in Australia 2022? ›Key statistics
Over the twelve months to the December 2022 quarter, the CPI rose 7.8%. The most significant price rises were Domestic holiday travel and accommodation (+13.3%), Electricity (+8.6%), International holiday travel and accommodation (+7.6%) and New dwelling purchase by owner occupiers (+1.7%).
It is being caused predominantly by high inflation outstripping wage and benefit increases and has been further exacerbated by recent tax increases. In early February, the government announced some measures to respond to high energy prices, a particular flashpoint of the crisis.
What are the three effects of an increase in inflation? ›Inflation raises prices, lowering your purchasing power. Inflation also lowers the values of pensions, savings, and Treasury notes. Assets such as real estate and collectibles usually keep up with inflation. Variable interest rates on loans increase during inflation.
What leads to inflation and increases in the cost of living? ›
Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.
Is Australia struggling with inflation? ›According to the Australian Bureau of Statistics, the consumer price index (CPI) accelerated in the September 2022 quarter, taking the annual rate to 7.3 percent (6.1 percent in June quarter). Food and nonalcoholic beverages inflation jumped to 9.0 percent in the September 2022 quarter (in 12 months).
Is Australia sinking or rising? ›Recent measurements using the Global Positioning System (GPS) suggest that the Australian continent is sinking, but current understanding of geophysical processes suggests that the expected vertical motion of the plate should be close to zero or uplifting.
What is the main cause of inflation in Australia? ›More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.
What happens if the US goes into inflation? ›Erodes Purchasing Power
An overall rise in prices over time reduces the purchasing power of consumers, since a fixed amount of money will afford progressively less consumption. Consumers lose purchasing power whether inflation is running at 2% or at 4%; they just lose it twice as fast at the higher rate.
Double-Digit Inflation in 2022
Some are even facing triple-digit inflation rates. Globally, Zimbabwe, Lebanon, and Venezuela have the highest rates in the world.
Why is property so expensive in Australia? A number or reasons, such as foreign investment, stronger land regulation, prohibitive tax systems, a highly urbanised market and more.
Is the cost of living in Australia higher than us? ›Yes, it is expensive to live in Australia than in the US. According to numbers, Australia is around 23.5% costlier than the US.
Is Australia an expensive country to live in? ›Australia. Although Australia is one of the most expensive countries to live in, residents enjoy some of the highest purchasing power in the world. The country ranks No. 3 in this regard, granting its citizens almost 5% more purchasing power than the U.S.
What is the current economic situation in Australia 2022? ›The Australian Economy - September quarter 2022. Our economy grew 0.6 per cent during the September quarter 2022, and 5.9 per cent compared to last year. This was the fourth consecutive quarter of growth since the COVID-19 Delta variant lockdowns. Household consumption drove the increase, growing 1.1 per cent.
How can we reduce cost of living in Australia? ›
- Cut down your energy usage – big time. ...
- Switch your bank account. ...
- Buy groceries online, or from small local shops. ...
- Rethink your commute. ...
- Switch your mobile/broadband provider. ...
- Track your spending with a smart money app. ...
- Actually make a budget. ...
- See if you're eligible for government benefits or vouchers.
According to Numbeo, Australia ranks 14th for highest cost of living in the world. This places this warm nation higher on the list than the United States, United Kingdom and even Canada (at least when you exclude rent costs).
How much does it cost to buy a house in Australia 2022? ›The June 2022 quarter saw the median house price across the combined capitals fall -0.9% from last quarter, where median prices sat at $1,074,676 to $1,065,447. Despite this slight decrease, the national median price for a house is still 10.9% higher than this time last year.
Who is most affected by cost of living crisis? ›Rising prices are impacting every single household, but the reality is that the least affluent are being hardest hit.
Is America in a cost of living crisis? ›Cost of Living Crisis: Higher prices means more Americans are taking on debt to make ends meet. After a year of higher prices, fewer families are able to pay their bills at the end of each month, as data shows more Americans are taking on debt and relaying on credit cards to make ends meet.
What is the biggest factor in cost of living? ›Housing costs: According to the U.S. Bureau of Labor Statistics, the largest bill consumers pay each month is for housing. Whether that's a mortgage or rent, a large percentage of your salary will go toward your housing expenses.
Who benefits from inflation? ›Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.
What is causing inflation 2022? ›Higher energy costs caused the inflation to rise further in 2022, reaching 9.1%, a high not seen since 1981. In July 2022 the Fed increased the interest rate for the third time in the year, yet inflation remained high outpacing the growth in wages and spending.
Is inflation good or bad for economy? ›Most economists now believe that low, stable, and—most important—predictable inflation is good for an economy. If inflation is low and predictable, it is easier to capture it in price-adjustment contracts and interest rates, reducing its distortionary impact.
Who is affected the most with the increase in cost of living Why? ›Fixed incomes earners like pensioners, daily wage earners, manual workers, small vendors, workers in small enterprises and in private low-income jobs are all badly affected by the continuous rise in prices. Income of the consumers adjusted to present inflation is the real income.
What are the two main causes of inflation? ›
There are two main causes of inflation: demand-pull and cost-push. Both are responsible for a general rise in prices in an economy, but each works differently to put pressure on prices. Demand-pull conditions occur when demand from consumers pulls prices up, while cost-push occurs when supply costs force prices higher.
What are the 4 main causes of inflation? ›In regards to current inflation, the main contributing factors include the increase in the money supply, worker shortages and rising wages, supply chain disruption, as well as fossil fuel policies. Inflation is an economic phenomenon where the value of goods and services in an economy increases over time.
Is Australia's inflation rate high? ›The annual inflation rate in Australia has climbed to 7.8% over the year to December, which is the highest annual figure since 1990. According to Australian Bureau of Statistics (ABS) data released on Wednesday, the CPI rose 1.9% this December quarter. In the June and September quarters, inflation rose by 1.8%.
Why is Australia moving so fast? ›All of the Earth's continents float on tectonic plates, which glide slowly over a plastic-like layer of the upper mantle. And the plate that Australia sits on has been moving relatively fast, about 2.7 inches a year (northward and with a slight clockwise rotation).
Is Australia struggling with water? ›Under climate change, droughts in Australia will become more frequent and severe. Our drinking water supplies, and water crucial for irrigation and the environment, will dwindle again.
How stable is Australia? ›| Countries | Political stability, 2021 | Global rank |
|---|---|---|
| Palau | 0.95 | 7 |
| Australia | 0.85 | 8 |
| Vanuatu | 0.79 | 9 |
| Fiji | 0.67 | 10 |
When prices go up, money can't buy as much as it used to. This loss of purchasing power hurts everyone's standard of living. When inflation is high, consumers, businesses and investors are uncertain about what their costs will be from one day to the next.
What usually happens after high inflation? ›Inflation raises prices, lowering your purchasing power. Inflation also lowers the values of pensions, savings, and Treasury notes. Assets such as real estate and collectibles usually keep up with inflation. Variable interest rates on loans increase during inflation.
Who benefits from rising inflation? ›Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.
What are 3 common effects of inflation? ›- Disproportionately Impacts Low-Income Households. When looking at inflation, it's important to understand how socioeconomic status impacts its effects. ...
- Raises Cost Of Living. ...
- Raises Interest Rates. ...
- Hurts The Growth Of Stocks And Bonds.
Who does inflation hurt the most? ›
In 8 out of 17 countries, lower-income groups whose consumption basket is mainly composed of essential goods are most affected by the increase in prices. Poorest households suffered a rise in prices 2 to 5 percentage points higher than the wealthiest households.
What is the best thing to do when inflation is high? ›- TIPS. TIPS stands for Treasury Inflation-Protected Securities. ...
- Cash. Cash is often overlooked as an inflation hedge, says Arnott. ...
- Short-term bonds. ...
- Stocks. ...
- Real estate. ...
- Gold. ...
- Commodities. ...
- Cryptocurrency.
For short term goals where you plan to spend the money within five years it's safer to go for a savings account and not worry too much about inflation. For long term goals you need to keep inflation in mind when you invest. Depending on your circumstances, you might or might not want a product that beats inflation.
What will stop inflation? ›Reducing government spending would tamp down on demand-fueled inflation, while at the same time restoring confidence in the ability of the federal government to pay down the debt and thus control inflation expectations.
How long will inflation last in the US? ›Caldwell estimates that the inflation rate will average around 1.5% between 2023 and 2025. “While consensus has largely given up on the 'transitory' story for inflation, we still think most of the sources of today's high inflation will abate, and even unwind in impact, over the next few years,” Caldwell says.
Is inflation good for homeowners? ›For homeowners: For several reasons, inflation is actually a good development for property owners. The most obvious benefit is the fact that the value of your home rises with the inflation rate.
Who benefited the most during inflation in an economy? ›Inflation brings most benefits to debtors because people seek more money from debtors in order to meet the increased prices of commodities.
Why are retired people hurt by inflation? ›Retirees often turn to their savings to get them through retirement. But when inflation occurs, the purchasing power of your savings diminishes, leaving you to withdraw larger amounts of savings to cover your costs of living, effectively shrinking the lifespan of your retirement savings.
Who in an economy is the big winner from inflation? ›The big winner from inflation in an economy is the borrower and the government being the biggest borrower benefits the most from inflation. The rise in inflation will lead to higher income but the loan to be repaid remains the same.
Why is US inflation so high? ›High inflation can be attributed in part to supply chain issues, steady demand, and energy uncertainty. The Federal Reserve has raised interest rates to combat inflation. Investors need to get creative to stay ahead of inflation's negative impact.
Why inflation is bad for American consumers? ›
Less Purchasing Power
The most obvious impact of inflation is that it hurts your purchasing power. If you can't buy as many goods and services as you did before inflation, your quality of living will eventually diminish.