What is inflation, and how does it affect the lives of Australians?

Inflation is an important economic indicator and a key driver behind every change in monetary policy. Even a meagre change in Inflation numbers can affect each and every Australian consumer and business, and, as such, Inflation is a crucial metric informing the economic approach taken by Reserve Banks and Central Governments around the world. Now, you may be wondering, if Inflation impacts everything, will I find it more challenging to get the Best Electricity and Gas Plans if it rises? 

In reality, that’s not the most pertinent question, as all prices are liable to increase across the board during times of increased Inflation, not simply one or two products. Let’s dive deeper into this important concept to determine the impact that it can have on everyday Australians and the cost of essential utilities.

What is Inflation?

Inflation relates to whether the price of a basket of products or collection of services across a state or country increases or decreases with time. Specifically, Inflation refers to the increase in the price of products from one point in time to another. There is also a term for the opposite phenomenon when prices across the board decrease: deflation.  In times of deflation, it may feel easier to get the Best Electricity and Gas Plans, as consumers can perceive the price drop as a saving. 

How Inflation is Measured in Australia?

When measuring the inflation rate, the methods employed can vary from country to country. The key indicator in Australia is the Consumer Price Increase (CPI), calculated by the Australian Bureau of Statistics (ABS) and published quarterly. The CPI measures the percentage change in the price of a basket of goods and services from one time to another.

It also considers how various households spend their income and weights different categories of goods and services. Housing and groceries take up the more significant portion of Inflation because they are more essential areas of expenditure for Australian households. Other categories included in the Consumer Price Increase are as follows:

  • Housing, Food & Beverages
  • Transport, Furnishings, Household Goods and Services
  • Alcohol and Tobacco
  • Financial Services
  • Clothing and Footwear
  • Education 

Is inflation Inevitable

It is fair to say that Inflation is inevitable over a sustained period. However, it can be maintained at a ‘healthy’ level. It is a normal phenomenon that happens over the years, and many central governments will establish a benchmark that they would like to hold to – usually at around 2-3%. It can become a significant concern if the inflation rate increases too much, as the flow-on effects can cause difficulty for every individual and the business. The Government and other agencies can do their best to influence Inflation; the most notable way is to increase the interest rate. That will directly impact the availability of disposable income in the population, and Inflation should correspondingly fall. But, this can cause a speedbump in the economic growth cycle of the country.

What Does the Higher and Lower Inflation Rate Mean?

When Inflation is low, it often corresponds with high unemployment, which results in lower net demand due to fewer people with regular earnings. Further, with deflation, consumers tend to delay and lower their spending in apprehension of challenges in the country’s economic future. It also means that people are more inclined to save money, meaning slower economic growth. It can benefit those who want to invest as they have to lower prices on their investments.

High Inflation is often a result of strong economic growth where the demand is high, and supply needs to meet this demand. When the inflation rate is high, the consumer tends to have a reduced purchasing power as the prices of goods and services have increased significantly. Such a situation may lead to job losses and household hardship. However, people will still find ways to find the Best Electricity and Gas Plans using the power of product comparison.