Analysts predict 13 per cent increase in cost of living

If you thought your family budget was under strain, you’d better brace for the storm coming. Experts predict double digit rise in household costs over the next 12 months.

More pain could be on the way for household budgets stretched thin by the cost of living crisis, with analysts predicting a double digit increase in household costs over the next 12 months.

Retail analysts at Barrenjoey have published a report outlining how surging petrol prices and rising interest rates are likely to have the greatest impact on household finances in 2022-23, followed by spiralling gas and electricity prices.

Barrenjoey’s calculations, which also consider rent, insurance and food costs – all tipped to rise by 5 per cent in 2022-3 – point to a 13 per cent increase in the cost of living next financial year.

“Our analysis shows that the cost of living – housing/loan interest, rent, petrol prices, energy, insurance and food – which accounts for $45,000 per household will rise 13 per cent in FY23,” the report says.

“The $450bn consumers saved through Covid is skewed towards high income households. This means the middle and lower income cohorts will likely face significant challenges.

“While most consumers will likely face faster wage growth in the year ahead, we do not think it will be enough to offset growth in households’ expenses.

“We can’t think of a time in the past 15 years when the consumer macro-outlook has looked more challenging.”

The official inflation rate hit a 20-year high of 5.1 per cent in March, and the Reserve Bank quickly responded by lifting the cash rate by 0.25 per cent in May and a further 0.5 per cent in June to 0.85 per cent.

Factoring in further interest rate rises expected over the coming months, Barrenjoey expects mortgage costs to surge by 53 per cent in 2022-23.

Household petrol costs are expected to increase by 36 per cent, based on the assumption that prices will stay at around $2 a litre. However the end of the temporary fuel excise cut in September is expected to push prices even higher later this year.

Meanwhile gas supply shortages on the east coast and higher wholesale electricity prices are expected to drive energy costs 14 per cent higher in 2022-23.

Barrenjoey’s forecast of a 5 per cent increase in food costs could be seen as optimistic, with the cost of lettuce, broccoli, beans and other fruit and vegetables skyrocketing in recent weeks due to a wetter-than-average start to the year and flooding in southern Queensland. The Ukraine war has driven up wheat prices and continues to threaten global supplies of bread, meat and eggs.

The gloomy inflation forecast has sparked a share sell-off and plunged consumer confidence to levels last seen during the early stages of Covid-19 two years ago.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.5 per cent to 86.4 in June, and Westpac chief economist Bill Evans attributed the slump to surging inflation and the prospect of aggressive interest rate hikes.

“Over the 46-year history of the survey, we have only seen index reads at or below this level during major economic dislocations – during the height of the pandemic, the GFC, and in the severe downturns of the early 1990s and in the mid and early 1980s,” he said.

“Those last three episodes were associated with high inflation, rising interest rates and a contracting economy – a mix that may be threatening to repeat.”

Daniella Caliendo said her family was facing cost pressures on several fronts.

“Electricity is a big one for us so we recently installed solar panels. Then I got an email just the other day saying that my gas was going up from the 1st of July,” she said.

“We’ve downloaded a petrol app so we literally scour to see where we can get petrol the cheapest and when we can get it the cheapest. And we just try not to go for long drives. We don’t pack the kids up and go somewhere on the weekends, we just don’t do any of that at the moment.

“And then before the Reserve Bank put the rates up we took out a business loan so now we not only have a bigger interest rate on our mortgage, but the income that we’re going to gain from the business is now going to go back onto those loans. It’s one step forward two steps back.”

Tammy Barton, director of personal budgeting service MyBudget, said it was important for households to prepare for further cost of living pressures.

“We are only at the beginning of the higher inflation journey and whilst we may not be able to control inflation, we can control what we spend our money on,” she said.

“Creating a budget is the best way to get control of your spending and save money. You can identify where your money goes, and from this you may be able to identify some non-essential spending and perhaps reduce some expenses.

“Can you take public transportation to save on petrol costs? Are you able to work from home to save spending money on petrol and car parking costs? You can also simply ask your bank for a reduction by shopping around to understand what their main competitors are offering.”