The Australian inflation hits its 20 years high, therefore consumers purchasing power at 5.1% pa. It is highest rate since 2000.

Inflation is an increase in the price level of goods and services. Basically, it means that a dollar today buys less than it used to as the prices of goods and services are increased.  

What are the main causes of the current inflation?

Inflation has many causes, but the main ones are increased demand to goods and services, and increased cost of production. Increased demand happens in a growing or expanding economy. Unemployment drops and wages usually rise. As a result, more people find themselves with more money in their pocket, which they’re willing to spend on luxuries and necessities. This higher demand allows suppliers to increase prices. This is not the reason for the inflation that we are facing currently.  

The main reason for the current inflation in Australia is due to pressure on global growth because of the impact of pandemic, and the war in Europe which has increased the commodity prices and shocked the supply chain. Manufacturers and producers have raised their prices as a result of increase in their costs. Over time, inflation can significantly impact cost of living, and it affects everyone from general public to businesses.

So, what does it mean for Australians?

• slowed economic growth
• increased cost for businesses, and manufacturers and therefore, it may cause increase in unemployment
• weakening consumers’ purchasing power
• deterioration on retirement savings
• with more likely increase in rates, increased mortgage repayments

In Australia new house prices came in at 5.7% for this quarter — the highest since the turn of the century. Builders are finding it difficult to quote given the cost pressures they’re facing.¹

Meanwhile rent growth is accelerating across capital cities, contributing 0.6% this quarter and it is expected more to come.²

This means increased pressure on the RBA to increase interest rates.

At its worst, inflation can really lower the value of the money you’ve invested and saved for retirement. With an overall decline of purchasing power, consumers might be forced to severely cut back on spending, even on necessities. As a result, businesses cut back on investing and spending, and they might have to lay off workers.

That is why with money management and long-term investments we always take into consideration of all the possible risks including inflation and its effect on our clients’ investment strategies and financial well-being.

As an investor, you may want to seek guidance on your investments and find out how to hedge against inflation. Feel free to contact us to find out how we can help you.

Source:^1,2 Pendal Funds Service Ltd

DISCLAIMERS
This document has been prepared by HQ Financial Solutions, an Authorized Representative of Lifespan Financial Planning Pty Ltd ABN 23 065 921 735,AFSL No.229892 based on providing for information purpose only. Accordingly, reliance should not be placed on this material as the basis for making a financial or other decision. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including HQ Financial Solutions, Halle Yilmaz or Lifespan Financial Planning Pty Ltd, accepts responsibility for any loss suffered by any person arising from reliance on this information. Before acting on this material, you should consider its appropriateness, having regard to your financial circumstances and needs, and  talked to a financial adviser in that field.

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.”