Inflation soars to 4.6%: What should you do?
Behind petrol price volatility, the underlying inflation rate is stable, but still quite high.
Key takeaways
- Annual inflation just hit 4.6%, the highest rise since September 2023.
- Petrol prices have jumped 32.8% in a month, although the fuel excise cut will lower this in future.
- Underlying inflation is more stable at 3.3%, which makes it harder to say if the RBA will lift rates next week.
Inflation figures released today show an annual rise of 4.6%. That's a massive jump (last month it was 3.7%).
At face value, this is terrible news and entirely unsurprising given the big increases to fuel prices following the US war against Iran.
Fuel prices rose 32.8% in just one month, according to the ABS figures. Although that's before the excise cut took effect.
But housing costs are the major driver of inflation, rising 6.5% (housing is a bigger component than fuel prices).
Digging deeper
There's headline inflation (the eye-watering 4.6%). And there's the trimmed mean inflation rate, which is steady at 3.3%.
The trimmed mean is a more important figure. It smooths out some of the crazy volatility (like yoyo-ing petrol prices) to give a more realistic picture of living costs.
While 3.3% is still a touch higher than the Reserve Bank's inflation target of 2-3%, it suggests that inflation in Australia is not out of control.
But it is too high, and global events are pushing it up further in the short term.
What will the RBA do next week?
The Reserve Bank of Australia meets next week to set the official cash rate target. Today's news will make a stronger case for another rate rise, taking the cash rate back to where it was in 2024.
But the stable underlying inflation does make a strong case for a hold. We're not out of the woods yet, but the RBA may decide to hold now and raise the cash rate later in the year if more inflationary pressure from the war in Iran drives prices up further.
What should you do?
- Hold tight. There's nothing you can do about inflation directly, but if you're a homeowner with a mortgage make sure you pay attention next week to see if the RBA raises rates. If it does, you may need to take another look at your home loan.
- Don't overpay for petrol. Fuel prices are driving living costs up. Use Finder's fuel tracker to check local prices, and take advantage of every petrol discount you can.
- Cut back. Find any way you can to spend less money. Every dollar helps. Cut subscriptions, shop around, compare prices and don't let things like insurance policies auto-renew. I saved over $700 on my contents insurance in just 20 minutes.
Sources
Ask a question