Inflation heading higher: which household costs will climb first?

Inflation is climbing globally, and Aussie households won’t be able to avoid rising price pressures. Here’s what to watch out for.

Rising inflation is set to hit Australians’ cost of living harder in the coming months, adding to existing pressure from soaring house and fuel prices.

Economists say consumers should brace for more price rises in areas such as furniture, technology, food and rents, but they add that blanket increases across all goods and services are not likely yet.

Australia’s annual inflation rate of 3 per cent is near a decade high, but still well below the US (6.2 per cent) and New Zealand (4.9 per cent), although imported inflation and wider economic factors could push it up more.

AMP Capital chief economist Shane Oliver said much of the inflation spike was temporary and caused by Covid factors including supply chain squeezes and locked-down consumers splurging on goods, “but we may find ourselves with a higher level of inflation than we saw before the pandemic”.

AMP Capital’s Shane Oliver says much of the inflation spike was caused by Covid.

He said the most intense money printing by governments since the 1970s, Covid stimulus spending and more workers retiring to become pure consumers could keep costs rising faster for longer.

Fuel prices have surged during 2021 and impacted transport and retail costs, car prices have climbed too, and Dr Oliver said furniture and electronic goods were at risk of bigger rises.

“Computers, which were falling in price for years, seem to have stopped falling,” he said. “We may also see more expensive holidays and airfares.”

Dr Oliver said if wages growth increased sharply, price rises would flow through to services such as insurance, haircuts and beauty treatments. “So far we haven’t seen a lot of that in Australia,” he said.

The latest Australian Bureau of Statistics figures show transport prices are up 10.4 per cent annually, household equipment and furnishings up 6 per cent and health 4.9 per cent.

MyBudget founder Tammy Barton said rents were also rising. “Rents can be anywhere between 30 and 40 per cent of someone’s net income, and have a big impact,” she said.

“Inflation can be a concern because it makes money saved today less valuable tomorrow.”

Ms Barton said consumers could combat household prices pressures by budgeting, negotiating lower loan repayments, and shopping around for better deals on mortgages, insurance, utilities and telecoms.

MyBudget founder Tammy Barton says inflation makes money saved worth less tomorrow.

CreditorWatch chief economist Harley Dale said fuel prices were an increasing problem.

“Now the economy’s reopening you have to fill your car up more often,” he said. “Consumers are going to feel that pinch.”

Fuel impacts the cost of everything from bulk transport to Christmas toys, and while the oil price has slipped back slightly from its October highs it’s still about 75 per cent higher than a year ago.

Mr Dale said global supply chain disruptions and more expensive agricultural products – particularly beef – were adding to inflation concerns.

“You can hypothesise that inflationary pressures overseas will find their way down here to some extent at some point,” he said. “That 6.2 per cent rise in US inflation last week was certainly quite up there, and we need to keep an eye out.”

Mr Dale said he did not think the Reserve Bank would lift interest rates soon because it wanted to see sustained growth in wages before acting, which meant “we are a long way from any kind of rate rise”.

Originally published as Inflation heading higher: which household costs will climb first?