- What Is Inflation?
- What Causes Inflation in Australia?
- How Is Inflation Calculated?
- How Much Is Inflation in Australia?
- What Is Your Personal Rate of Inflation?
- How to Cope with Inflation in Australia?
- How to Protect Your Money from Inflation?
Inflation affects everyone, from rising grocery prices to higher rent and fuel costs. Over time, the purchasing power of your money decreases, meaning you need more dollars to buy the same goods and services.
But what exactly is inflation? How does it impact your daily life in Australia? And most importantly, how can you prepare for it and minimise its effects on your finances?
Find all the answers in our detailed guide below.
To help you understand inflation better, we’ve also built a free Australian Inflation Calculator, allowing you to calculate the value of money over time based on historical inflation rates.
What Is Inflation?
Inflation is the gradual increase in the prices of goods and services over time, reducing the value of money. As inflation rises, the same amount of money buys fewer goods.
For example
If a litre of milk cost $2 last year but now costs $2.40, that’s a 20% increase due to inflation.
Inflation affects everything from groceries and fuel to housing and wages, playing a key role in Australia’s economy.
What Causes Inflation in Australia?
Several factors contribute to inflation in Australia:
- Demand-Pull Inflation – When demand for goods and services exceeds supply, businesses raise prices. For example, if more people want to buy new cars but production is low, car prices go up.
- Cost-Push Inflation – When production costs rise (e.g., wages, raw materials), businesses pass the cost onto consumers by increasing prices.
- Supply Chain Disruptions – Events like COVID-19, natural disasters, or global conflicts can cause shortages, making products more expensive.
- Government & Monetary Policies – Low interest rates, stimulus payments, and high government spending can increase the money supply, driving inflation.
- Energy & Fuel Prices – Rising oil and electricity prices increase transportation and production costs, affecting everything from groceries to airline tickets.
How Is Inflation Calculated?
The inflation rate measures the percentage increase in the prices of goods and services over a certain period.
Australia’s Inflation Measure: The Consumer Price Index (CPI)
Inflation in Australia is measured using the Consumer Price Index (CPI), which tracks price changes for a basket of essential goods and services (e.g., food, housing, fuel, transport).
Formula for Inflation Rate
Inflation Rate = ((CPI in Current Year − CPI in Previous Year) ÷ CPI in Previous Year) × 100
For example
If the CPI was 125 last year and 130 this year:
((130 − 125) ÷ 125) × 100 = 4% Inflation Rate
This means the inflation rate is 4% for the year.
To make things easier, we’ve created a free Australian Inflation Calculator, allowing you to track inflation and see how it affects the value of your money.
How Much Is Inflation in Australia?
Inflation in Australia is monitored by the Australian Bureau of Statistics (ABS), which releases quarterly CPI reports.
Below is a table showing Australia’s annual inflation rates over the past decade:
| Year | Inflation Rate (%) |
|---|---|
| 2023 | 4.1% |
| 2022 | 7.8% |
| 2021 | 3.5% |
| 2020 | 0.9% |
| 2019 | 1.6% |
| 2018 | 1.8% |
| 2017 | 1.9% |
| 2016 | 1.3% |
| 2015 | 1.5% |
| 2014 | 2.5% |
Good to know
Inflation in Australia peaked at 7.8% in December 2022, the highest level in over three decades, before gradually decreasing.
What Is Your Personal Rate of Inflation?
While the national inflation rate provides an average, your personal inflation rate depends on what you actually spend money on.
For example
If your weekly grocery bill was $200 last year but is now $230, your personal grocery inflation rate is:
((230 − 200) ÷ 200) × 100 = 15%
This means your grocery costs have increased by 15%, even if the national inflation rate is lower.
Tip: Tracking your personal expenses helps you see how inflation affects your specific lifestyle.
How to Cope with Inflation in Australia?
Inflation can put pressure on household budgets, but these practical tips can help you manage rising costs:
- Cut Unnecessary Expenses: Review your subscriptions, dining out, and impulse purchases to free up extra cash.
- Buy in Bulk & Use Discounts: Stock up on non-perishable groceries and household items when prices are lower. Use loyalty programs, cashback offers, and discount apps to save money.
- Negotiate Bills: Call your internet, phone, and insurance providers to ask for better deals.
- Use Public Transport: With fuel prices rising, using public transport or carpooling can cut transport costs.
- Consider Generic Brands: Store-brand products often cost 20-30% less than name brands but offer similar quality.
How to Protect Your Money from Inflation?
Investing is one of the best ways to preserve your wealth against inflation. Here’s how Australians can beat inflation:
- Shares & ETFs – Investing in ASX-listed companies helps your money grow faster than inflation. Historically, the Australian share market has returned 7-10% annually.
- Real Estate – Property values in major Australian cities tend to rise over time, providing a hedge against inflation.
- High-Interest Savings Accounts & Term Deposits – With interest rates rising, high-yield savings accounts and term deposits offer safer returns.
- Commodities & Gold – Investing in gold, silver, or commodities can protect against inflation during economic uncertainty.
- Treasury Bonds & Inflation-Linked Bonds – Australian Government Bonds (AGBs) and Treasury Indexed Bonds (TIBs) adjust for inflation, ensuring your money retains its value.
Expert advice
A well-balanced investment portfolio can help you stay ahead of inflation and protect your financial future.
Inflation isn’t just a global issue—it directly impacts your cost of living. By understanding how inflation works and adapting your spending, saving, and investing strategies, you can minimise its effects on your finances.
To help you track inflation and plan better, try our free Australian Inflation Calculator and stay informed about how inflation affects your money over time.
