Cost of living pain to worsen as key inflation figure sparks rate hike fears

The inflation genie could be back out of the bottle, with experts warning households they will need to relearn the lessons of 2022.

The Australian Bureau of Statistics on Wednesday revealed the headline inflation rate was 3.8 per cent for the 12 months until December, up from 3.4 per cent in the 12 months until November.

Zyft consumer finance expert Joel Gibson says that means households the cost of living crunch is far from over, with just a little bit of pressure being let out of the valve in 2025.

“Unfortunately, it is a feeling of here we go again,” Mr Gibson said.

“We’ve probably had a little bit of relief in the last year and half, but the rate cuts are over and we are possibly going to get rate hikes as early as next week.

“The inflation genie seems to be out of the bottle again, so if you have a mortgage or not, the cost of living seems to be going up again.”

Annual goods inflation was 3.4 per cent in the 12 months to December, up from 3.3 per cent to November.

This was 3.3 per cent higher in December, up from 3.2 per cent in November.

This was mainly due to the price of electricity soaring 21.5 per cent as both federal and state rebates were unwound, as well as the price of meat which had a double digit jump.

Services inflation also added 4.1 per cent to household bills to the 12 months until December, up from 3.6 per cent to November.

The main contributor to this was domestic holiday travel up 9.5 per cent – in part due to the Ashes cricket series against England – as well as rising rents which stung households a further 3.9 per cent.

Meanwhile, the Reserve Bank of Australia’s all important trimmed mean inflation rate – which strips away volatile items such as fuel – for the three months until December came in higher than expected at 0.9 per cent.

Mr Gibson said when an interest rate rise was added to the inflation figure Australians would need to find thousands more in the family budget.

“All of these increases combined would mean an average Australian household should stand to shell out an additional $2192 over the course of this year,” Mr Gibson said.

He pointed out the inflation pain was widespread, hitting power bills, rentals and mortgages.

“These aren’t things you can avoid. The key is to focus on savings that actually move the needle. It’s not about skipping your morning $5 coffee,” Mr Gibson said.

He said households would have to relearn the lessons of 2021-2024, when inflation spiked post-pandemic.

“Australians were forced to find ways to save like they never had to think about before,” Mr Gibson said.

“It’s things like not automatically renewing your insurance but instead shopping around or letting your electricity plan run for a few years before checking if there is a cheaper one out there.

“Every time Australians buy something – whether it is the groceries or back to school devices this week – you’ve gotta make sure you are checking the prices and using the latest tech tools to do so.

“If you don’t do that, it is pretty hard to pay the bills at the moment.”

New data from the Australian Bureau of Statistics (ABS) has revealed inflation surged to 3.8 per cent in the year to December, while the trimmed mean inflation lifted to 3.3 per cent.

Sky News Business Editor Ross Greenwood says effectively, the Reserve Bank of Australia “will raise interest rates” next Tuesday. “It’s almost got no choice but to do so,” he said.

Game, set, match on rate hikes

Following Wednesday’s inflation data, experts quickly made the call on an interest rate hike next week.

Markets immediately increased the odds of a rate hike after the February 2-3 RBA board meeting from 60 per cent to 70 per cent.

Betashares chief economist David Bassanese forecast the hotter-than-expected inflation figures mean interest rates needed to rise in February.

“All up, it appears to be game, set, match for a rate rise at the February policy meeting,” he said.

“My base case is that the RBA will raise rates by 0.25 per cent, taking the cash rate to 3.85 per cent.”

Mr Bassanese warned mortgage holders that a rate hike in February may not be the last one.

“The RBA might also raise rates again at the May policy meeting,” he said.

“To my mind, two rate hikes – given our highly indebted and interest-rate-sensitive economy – should be more than enough to dampen economic growth again and rein in ongoing inflation pressures in areas such as housing, travel and hospitality.”