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Cost of living to remain high: Inflation now at 6.8%, but there’s some good news

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Sorry, with the latest data showing inflation is still well above the target range the cost of living is set to stay high for a while yet.

The latest data released by the Australian Bureau of Statistics (ABS) shows Australia's inflation rate is sitting at 6.8%.

This inflation rate is for the 12 months to February 2023, meaning the cost of living has risen by 6.8% over that period.

In dollar terms, $100 worth of groceries in February last year would cost $106.80 today, for the same items.

The Reserve Bank of Australia (RBA) wants to see an inflation rate of 2-3% for a healthy economy, so the current rate of 6.8% is still far higher than ideal.

High inflation means the cost of living rises putting pressure on households and businesses. It also leads to more unemployment as businesses lay off staff to cut costs.

However, an inflation rate that is too low means the economy is stalling and wage growth is suppressed. This is what we saw throughout 2020 and 2021, when the inflation rate was hovering around just 1%.

What's the bad news?

Unfortunately, with inflation still high at 6.8%, we can expect the cost of living to also remain high for some time yet.

One of the biggest drivers for the cost of living increase is the cost of housing.

Many months of consecutive cash rate increases has caused mortgage rates to climb.

This has led to increased repayments for homeowners, and increased rents for tenants as landlords try to cover their price increases.

Until the RBA starts to cut the cash rate again, housing costs will remain high.

What's the good news?

The good news is that an inflation rate of 6.8% is actually lower than it was at the end of 2022, when inflation hit 8.4%.

ABS head of prices statistics Michelle Marquardt said: "This month's annual increase of 6.8 per cent is lower than the 7.4 per cent annual rise reported in January 2023. This marks the second consecutive month of lower annual inflation, also known as 'disinflation', from the peak of 8.4 per cent in December 2022."

In April we also saw the RBA pause the cash rate after 10 consecutive months of raising the rate.

This, along with the early trend of the inflation rate falling, could be a good sign that the economy is slowly returning to normal and the cost of living may ease up a bit as a result.

The first step towards keeping up with the rising cost of living is to create a budget, reduce your spending and look for ways to save. A high interest savings account can make your savings work even harder.

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