The Reserve Bank of Australia (RBA) was surprised by the acceleration of consumer price inflation and started lifting interest rates in May 2022. They had previously assured us that interest rates would not increase until 2024.
The cost of living was already the issue which was expected to be of most concern in the foreseeable future for Australian adults, and has been since at least 2018.
The Reserve Bank’s aim is to reduce inflationary pressures by subduing demand in the economy, especially consumer spending growth. This will in theory lead to lower price inflation, as measured by the consumer price index (CPI) which is calculated quarterly by the Australian Bureau of Statistics (ABS).
Other data on the cost of living shows that it has risen much more than the CPI for some households.
Several utility companies have foreshadowed steep increases in the price of electricity and gas as 2023 progresses. The Reserve Bank expects interest rates to rise further in the months ahead.
The true cost of living seems set to continue to rise during 2023. This is already slowing the pace of consumer spending and further declines seem likely. This will contribute to slower economic growth.
Not all consumers are equally affected and this offers opportunity for consumer marketers to avoid the worst impacts of the slowdown.
This February 2023 report is the first in a series which measures the cost of living impacts and their flow on effects to consumer spending and the broader economy. Forward-looking indicators suggest that the most severe impact is expected in late 2023 and into early 2024. These will be updated later in February.
The next report will be available in mid-March 2023.