Cost of living in 2024

Inflation, interest rates, the economy, CPI – it's enough to make your head spin. We explain Cozzy Livs in simple terms, so you can understand how it impacts you.

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By

Sarah Megginson

Edited by

Moira Daniels

cheese blocksThe cost of living in Australia has been rising since early 2022. In a nutshell, inflation – which is the difference between how much something cost 12 months ago compared to how much it cost now – has been on a steady climb. Our most recent inflation figure for July 2024 was 3.8%.

High inflation is not a good thing. Take a block of cheese, for instance. A year ago, that square of cheddar was $10. Today it's $10.50, representing inflation of 5%. In the last couple of years, everything has increased in price (you may have noticed). Inflation reached 7.8% in December 2022, meaning – in very general, very simple terms – that everything you bought for that month cost 7.8% more than it did in December 2021.

Realistically, prices increase at varied levies. My favourite brand of cheese, for instance, went up from $7 to $10.50, an increase of 40% – way higher than inflation! My eggs barely increased at all, going from $6.90 to $7 – inflation of around 1.2%.

And that right there is what the RBA is chasing...

Small, negligible, barely noticeable inflation.

The RBA's job is keep inflation somewhere around 2-3%. That's enough for the economy to keep growing, but not so much that we're all struggling to keep up with rising costs. The main way the RBA influences inflation is by increasing the cash rate (which is the amount banks pay to get money they lend us). That pushes our mortgages up, and means we spend less on things like expensive cheese. As a result, inflation starts to come down – but in the meantime, anyone with a mortgage is potentially in a world of financial pain.

It's not a fun job for the RBA, because no-one really likes them for doing this. But if they let inflation keep soaring and kept our interest rates on hold, we'd all be complaining even more when cheese prices hit $20 (and prices of everything else hit bonkers prices).

In an effort to fight high inflation, the RBA has increased the cash rate a total of 13 times since May 2022. It now stands at 4.35%, and once the banks add their profit margin on top, it means you're paying around 6% to 6.5% for your mortgage.

What is the cost of living crisis in Australia?

Over the last two years, the cost of living in Australia has soared. A home you may have rented for $550 a week in 2021 is now renting for $850 a week. The average mortgage has gone up over $1,000 a month, according to Finder research. Our household bills including insurance, energy, groceries and petrol have all gone up, too. In other words: people are doing it tough financially.

The latest quarterly inflation figure, released in July 2024, is 3.8%, with a core inflation rate of 3.9%. This is the main metric the RBA is looking at – and it has decreased every month for the last 7 months.

So, yes, the cost of virtually everything, from breakfast cereal and fruit to petrol and even rent, has been going through the roof. But now with inflation finally decreasing, we should start to see the RBA cut rates at some point in the next 6-12 months. The exact timing is anyone's guess, and our panel of experts and economists weigh in every month on exactly this (you can read their forecasts for the rest of 2024 and 2025 here).

Latest cost of living articles

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.

Inflation cost of living
Monthly inflation figures

In the past, the ABS has released CPI data on a quarterly basis. As of November 2022 it started releasing monthly year-on-year figures to get a better understanding of where inflation sits.

The first monthly CPI figure was for the month of October 2022 and showed that inflation had fallen back slightly compared to the quarterly figure. However, the quarterly figure remains the principal measure of household inflation.

Inflation figure for July 2024: 3.80%

The most significant rises were housing, food & non-alcoholic beverages, alcohol and tobacco, and insurance & financial services.
Starting in 2024, the CPI weights are updated in January each year. This is to ensure that household spending patterns are accurately reflected in the CPI basket.

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%.
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Expert insight: How to sort your budget

"Most people look at cutting out their $5 coffees or $16.99 Netflix subscription, but the biggest expenses we generally have are housing, transport and food. So if we can find a way to reduce those expenses even a little bit, we can spend more on the fun expenses (like entertainment and eating out)! Have a look at your expenses from the past 3 months and see if there are any areas you could cut back on. Once you have an idea of how much you roughly spend each month, you can look into automating your savings by setting up automatic transfers to a savings account, or even investing if that's one of your goals. And finally, it's a good idea to look at ways to increase your income. You can only save so much, but by getting a pay rise, or even switching jobs into a higher paying job (studies have shown that new employees get paid 7% more than existing employees doing the same job!), you may not even need to cut anything out of your budget at all, and still be able to save more money."

Founder, Invest With Queenie

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.

Inflation of 6.3% means, on average, you need $106.30 today to buy what $100 bought you 12 months ago.

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

how-the-cash-rate-rise-aims-to-stifle-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.

Independent financial expert Nicole Pederson-McKinnon says, "The chances are the biggest pressure on your purse strings is coming from rising rates if you're a home owner or rising rents if you're not. The easiest ways to contain the pain are to get 'moving or mowing', respectively; move to a cheaper lender or make like many Aussies and barter your assistance and expertise for a discount from your landlord."

Inflation affects everyone to some extent, so it's a good idea to ensure your budget has some wiggle room.

How inflation affects your savings

With inflation rising, it means your cash in the bank is worth less than it was before. However, there is some good news for your savings.

With the RBA increasing the cash rate, banks are increasing home loan rates too. This is bad news for home owners as it means they'll be paying more interest. However, banks are also increasing their savings rates. This is good news for savers as you'll be earning more interest on your cash.

Back in 2021, you'd have been lucky to find a savings account offering much more than 1.5% p.a. interest. Now, as of November 2024, there are several high interest savings accounts paying over 5% p.a. interest.

How inflation affects your income

When we have rising inflation it means your money is effectively going backwards, unless your income is also increasing at the same rate. Unfortunately, the RBA is strongly advocating that employers don't give pay rises in line with inflation.

If everyone got a pay rise in line with inflation, the RBA fears it'd only push inflation even higher. This process is called a wage-price spiral, and it's the reason why you might not get much of a raise this year.

Finder's 2023 Cost of Living Report

How you can protect yourself from the rising cost of living

Family putting money in piggy bank
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
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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
Row of homes
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
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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
Finder app
Track your spending
Make a budget and see where your money is going.
⭐ Top tip: Download a free budgeting app
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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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To make sure you get accurate and helpful information, this guide has been edited by Moira Daniels as part of our fact-checking process.
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Head of editorial

As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Channel 7 news, Nine news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media. See full bio

Sarah's expertise
Sarah has written 191 Finder guides across topics including:
  • Home loans
  • Personal finance
  • Budgeting and money-saving tips
  • Managing the cost of living

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