Opinion
If inflation is under control, why does your budget feel so stretched?
Nicole Pedersen-McKinnon
Money contributor“Inflation is down? Where exactly? My [council] rates just went up 18 per cent, electricity 15 per cent, insurance 12 per cent. They need new statisticians – all my costs are up.” So said a friend of mine this week on the welcome news that inflation had fallen.
The annual number came in at 2.7 per cent, squarely in the Reserve Bank’s target range of 2 to 3 per cent and the lowest figure since December 2021.
It’s extra good news, firstly, because inflation has been in this range now for two quarters. In March, it was 2.9 per cent. But secondly, this is an important measure of inflation, called the “trimmed mean”, and it gives the underlying price growth.
Inflation is now back in the 2 to 3 per cent target range.Credit: Eamon Gallagher
But, if inflation in the economy is now looking under control, why do our budgets feel so out of control?
Unpacking the bits of the headline, we are still contending with price hikes in food and non-alcoholic beverages (up 1 per cent last quarter alone and 3 per cent for the year) and health (up 1.5 per cent quarterly and 4.1 per cent annually). Housing too was up (by 1.2 per cent in the past quarter but only 2 per cent annually). Partially offsetting these rises was a fall in our transport spend the past year (down by 2.6 per cent).
But why does it feel so expensive for my friend – and possibly for you – right now?
A new financial year is a great time for an audit of your utilities and insurances, and your interest-incurring products as well.
Well, the trimmed mean measure of inflation excludes a certain percentage of the highest and lowest price changes – in fact, the top and bottom 15 per cent. So those bigger movements are left out to get at the overall trend.
The idea is to reduce the effects of irregular or temporary price changes. And let’s not forget either, that like all data, inflation is backwards looking. In this case, to last financial year at the very time we are all feeling the seasonal, new financial year effect.
Electricity prices are revised on July 1 – and yes, they have gone upwards. Your council rates bill has probably just landed. Mine made me flinch. You may have – invariably higher – insurance renewals coming in, too. (Insurance and financial services have seen among the heftiest hikes for the year at 3.1 per cent.)
And there’s possibly more on your costs calendar right now. While the trimmed mean inflation doesn’t cover this period (or maybe strips out these costs), the reality is it’s hurting.
So, what can you do about it?
Well, know first that because of the broadly downwards inflation trend, another interest rate cut now looks more likely. The next decision will be announced on August 12.
Every cut on a $500,000 mortgage delivers an almost $80 reprieve per month. Then, as one Money reader who wrote to me last week about his fightback plan, focusing on the annual power price rise, said: “I’m a stickler for details, love a spreadsheet and take the time to look at the pricing tiers of gas and electricity plans. (Nerdy, huh? But actually just fed up and wanted to cut through the noise, so have had the plans under the microscope for some years),” he said.
“In this case, what started as emails advising of default 9 to 12.5 per cent rises across gas and electricity, ended up being: 1.17 per cent rise for electricity and a 1.39 per cent DECREASE for gas!”
Yes, he simply queried it and snared generous concessions. And his supplier – he didn’t even need to switch – gave him two lots of $100 credit, one for each account, for making the plan changes.
His summary: If ya don’t ask, ya don’t get!
“Anyway, the essence of my note today is certainly not new to you, Nicole, and something you always preach: shop around/do the homework/reap the rewards,” he said.
“People really need to take your advice.”
Couldn’t have said it better myself. A new financial year is a great time for an audit of your every expense; all your utilities and insurances, and your interest-incurring products as well.
I guarantee this will finally make it feel like inflation is falling.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter, and Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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