Prices pain: the biggest inflation increases since rate rises began

The costs of energy, eggs, cheese and insurance have surged since Reserve Bank interest rate increases began. See the biggest rises.

A surging cost of living has put many household budgets under water. Picture: iStock

Key household costs have ignored Reserve Bank of Australia efforts to keep price rises under control over the past two years, creating consumer pain and higher-for-longer home loan repayments.

Since the RBA announced the first of its 13 interest rate rises in May 2022 to slow surging inflation, dozens of components of the Consumer Price Index have climbed much more than the overall CPI rise of 12 per cent. Some prices have surged 50 per cent more than CPI over the period.

Electricity and gas prices are each up more than 20 per cent, insurance costs more than 30 per cent, and several grocery staples have jumped more than 18 per cent – piling extra pressure on household budgets dealing with higher rents and mortgage costs.

Last week’s inflation data was slightly lower than expected, prompting most economists to declare there would be no more RBA rate rises. Some forecast a cut before the end of this year, but many still do not expect relief until early-to-mid 2025.

AMP chief economist Shane Oliver. Picture: Supplied

CreditorWatch chief economist Anneke Thompson. Picture: Supplied

CreditorWatch chief economist Anneke Thompson said different items had different reasons for strong price rises but “overall, interest rates have had the desired effect and consumer demand is well down”.

She said surging insurance costs reflected global factors including climate change and weather events, while some grocery items had been impacted by poor growing conditions.

Ms Thompson said it had taken a while for the first RBA rate rises in 2022 to hit households and “and that’s why interest rates will stay higher for longer in this particular cycle”.

“It took a good six months for consumers to start feeling it, people had Covid cash reserves, and nobody knew we would have this many rate rises and that they would stay high for so long,” she said. “If they knew, they probably would have curbed their spending straight away.”

Catapult Wealth director Tony Catt said energy and insurance costs were having a big impact on households, and recent data showing a rise in car repossession rates was “the canary in the coal mine for consumers”.

“That’s the second-last thing that goes … the last thing is your house,” he said.

Mr Catt said some hospitals were seeing high cancellation rates for elective surgery, as many households finances were “falling in a hole” following the rate rise barrage.

“The gap is widening between the haves and the have-nots,” he said.

AMP chief economist Shane Oliver said there could be a long lag between rate rises and price falls, and he said many of the strongest price rises of the past two years reflected supply squeezes.

Housing was an example, he said, suffering from “a shortage of materials, and a shortage of builders”.

Dr Oliver said most people maintained their insurance policies despite premium rises, while insurance companies now had to pay more for building replacements and repairs.

Prices of international holidays have jumped almost 48 per cent since March 2022, but prior to that had fallen sharply during the pandemic.

“There was a reopening burst, and it’s taken a while for airline capacity to return to normal,” Dr Oliver said.

He said the RBA’s rate rises were making households feel poorer and spending less. Many discretionary spending items in the CPI data have flat or falling prices.

“It looks like things are falling back into place for lower inflation, but some items will continue to be a problem,” Dr Oliver said.

BIGGEST INCREASES

(Inflation rises since early 2022)

International holidays up 47.8%

Oils and fats up 34.3%

Insurance up 30.5%

Eggs up 22.8%

Cheese up 21.5%

Gas up 21.3%

Electricity up 20.2%

New homes up 19.7%

Postal services up 19.6%

Bread up 19.5%

Tobacco up 19.2%

Motor vehicle parts and accessories up 19%

Milk up 18.8%

Breakfast cereals up 18.4%

Cakes and biscuits up 18.2%

Veterinary services up 18%

CPI All Groups up 12%

Source: Australian Bureau of Statistics