Cost of living in 2024

The cost of living in Australia rose quickly in 2022 and early 2023, but promising data shows we're on the other side. In an effort to fight high inflation, the RBA has increased the cash rate a total of 13 times since May 22 and it now stands at 4.35%.

The latest quarterly inflation figure (to December 2023) is 4.1%, down from a high of 7.8% in the quarter to December 2022.

Why? Because the cost of virtually everything, from breakfast cereal and fruit to petrol and even rent, is going through the roof. We explain why, and how it impacts you.

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What does cost of living mean?

In a nutshell, cost of living is a summary of how much it costs to live in a particular place (in our case, Australia).

At the moment, those costs are increasing. Day-to-day necessities like fruit and vegetables at the supermarket, your medications from the chemist, the petrol you put in your car, even your energy and gas bills, and your home loan or rent, are increasing due to something called inflation.

The cost of living looks at the cost of essentials, not luxuries. It's used to measure how expensive it is to live in one place compared to another.

How is the cost of living measured?

The main way it's measured is with the Consumer Price Index (CPI).

The CPI measures the costs of 11 categories of necessary goods and services. The Australian Bureau of Statistics (ABS) looks at the prices of thousands of individual items and measures their price movements month to month.

From here it'll pull out a "basket" of everyday goods and measure the cost of these items.

What's in the CPI basket?

CPI is calculated by comparing the total cost of the basket last month to this month, and then it's expressed as a percentage.

• When the cost of the overall basket goes up, the cost of living is rising and monthly CPI has officially increased, e.g. CPI is up 0.7%.
• When the cost of the overall basket goes down, the cost of living is decreasing and monthly CPI has officially fallen, e.g. CPI is down 0.4%.

Inflation 101

• The change in the cost of things over time is how we determine inflation or deflation.
• While CPI is used to measure changes in prices, inflation measures the change in spending by households.
• Inflation over the 12 months to the December 2023 quarter was 4.1% – so the overall cost of living has risen by this much over the past year.
• The inflation rate for the month of December 2023 was 3.4%.
• The RBA's ideal inflation rate is around 2-3%.

Why is inflation important?

Inflation measures our buying power – in other words, how much your money is actually worth.

If the cost of a basket of items has jumped 7.3%, but your income has stayed the same, your buying power has gone down as you can't buy as much with your money as you could last year.

With inflation rising at a fast pace, our money is essentially getting less valuable.

Unless your income goes up by at least the same rate, rising inflation will lead to financial pressure for many people who can't keep up with the increased costs of groceries, fuel and housing.

By using PocketSmith's Global Spending Map, we can see how much more Australians are spending across different areas thanks to inflation. For example, between June 2023 and June 2024, household spending on groceries increased by 9%.

Recent Finder research has found 11 million Australians are taking action to deal with rising costs, including 48% who have dropped their living standards.

How does inflation change?

Without getting too deep into economics, the primary tool the Reserve Bank of Australia (RBA) uses to control inflation is the cash rate.

When the cash rate is low (like it was in early 2020 through 2021), it stimulates spending and household investment. This spending is what drives inflation up.

When the cash rate gets higher, it generally translates to less household spending, which helps drive inflation down.

This is because when the RBA increases the cash rate, banks and lenders pay more for the funds they lend out, and charge more for a home loan. Overall, this makes borrowing money more expensive.

Why a rising cash rate lowers inflation

Why are people worried about inflation?

High inflation means it is more expensive to pay for things. It puts more pressure on household budgets and can lead to financial stress. Some groups of people significantly affected by inflation include:

• Lower income earners. People on low incomes or who are living payday to payday are the first to feel the impact of rising inflation. As the price of goods and services goes up, your money doesn't go as far, which can make it really hard to make ends meet.
• Those on fixed incomes. People on fixed incomes, like retirees, are also affected more by rising inflation. When you're working, rising inflation puts pressure on wages to keep up. However, if you're not earning a wage, you don't benefit from this upward movement.
• Mortgage holders. People who have a home loan are affected by both inflation itself, and by the raising of the cash rate used to stifle it. When the cash rate increases, banks raise home loan rates, and if your rate is variable, it means your mortgage gets more expensive each month.

Finder's 2023 Cost of Living Report

How you can protect yourself from the rising cost of living

Slash your spending

It's easier said than done, but there are heaps of small, simple ways to decrease your spending and the savings really add up.
⭐ Top tip: Grocery shop at night

Invest

Investing your money is a great way to grow your wealth while you sleep – and you don't need a lot to get started.
⭐ Top tip: Start with micro-investing

Manage mortgage rate hikes

The cash rate increased a lot over the past year. Compare your home loan now to find a better rate.
⭐ Top tip: Consider refinancing

Switch & save on utilities

The wholesale price of electricity has skyrocketed. Make sure you're getting the best deal you can.
⭐ Top tip: Look at smaller providers

Track your spending

Make a budget and see where your money is going.
⭐ Top tip: Download a free budgeting app

Increase your income

With inflation at 6.0%, if you haven't increased your income, you're going backwards – here's how to negotiate.
⭐ Top tip: Come prepared with this data

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