Why is inflation so bad right now?

Fact Checked
Updated 07/12/2022
Why is inflation so bad right now?

Inflation is going to be with us for a little while.

Time to read : 2 Minutes

Why Is Inflation So Bad Right Now

If you're wondering why everything is costing so much and the RBA is still putting up the cash rate, then you aren't alone.

📈 And the answer is inflation is too high.

🔍 The RBA wants inflation to be between 2-3%, but right now it's still at 6.9%, and until we hit their target interest rate increases are likely.

🤔 But the reason that inflation is so high around the world is complicated.

Here are five reasons why

  1. COVID The virus didn't just lock us up, it shut down the world economy. The International Monetary Fund (IMF) estimates the international market shrank by 4.4% and described it as the worst decline since the Great Depression.

  2. TRANSPORT Logistics fell apart during COVID. Trade routes collapsed as borders closed and quarantines began. Workforces were both cut to keep companies viable and run on a skeleton staff, with many workers off sick with the virus.

  3. ENERGY There are three key reasons that utilities are costing so much. The sanctions against Russian fuel, Australia's slow transition to renewables, and our ageing power stations are all pushing electricity and gas prices up and up.

  4. THE SPENDING SURGE Another reason that inflation is so high is that the recovery after the COVID lockdown/recession was unexpectedly strong. In part, the Government support with JobKeeper and the RBA's low cash rate helped some of us to build up savings buffers, which are now being spent.

  5. STAGNANT WAGES As Treasurer Jim Chalmers said in his budget speech, "real wages are lower today than they were 10 years ago." So things aren't just costing more, you have less money too.

The bottom line

Inflation is predicted to turn around next year, with Westpac predicting our economy to slow to 1% in 2023.

The RBA doesn't meet in January but another interest rate increase of .25% is expected in February.

So for now, we should expect that everything will continue to be expensive and that most of us will have to be careful with our spending.

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The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions.