The Australian government is touting its success in bringing inflation under control, with the Consumer Price Index (CPI) rising just 2.4% over the past year. Yet, for many Australians, the reality of everyday expenses tells a different story, with key living costs—especially mortgage repayments—still weighing heavily on household budgets.
Despite a marked slowdown in price increases, concerns about affordability remain high. The latest living cost indexes from the Australian Bureau of Statistics (ABS) show that while inflation is easing, household expenses are still rising, leaving many questioning whether economic stability is truly within reach.
Inflation slows, but household budgets remain stretched
While official inflation figures suggest a return to stability, many Australians are still feeling the effects of previous price surges. The CPI figure of 2.4% may be within the Reserve Bank of Australia’s target range, but it fails to capture the lived experience of most households.
The ABS living cost indexes, which divide households by economic circumstances, reveal a more nuanced reality. For example, while the CPI reflects general price movements, it does not account for mortgage repayments, which have surged 14.7% in the past year. The cost of living for employee households rose 4.0%, a rate significantly higher than the CPI figure.
These figures highlight a core issue: while inflation may have peaked, the cumulative effect of past price increases means that Australians are still paying far more than they were just two years ago. Food prices, for instance, have risen 12% since the Labor government took office, even as the annual rate of increase has slowed from 5.9% to 3.0%.
Interest rates continue to dominate the economic landscape
One of the biggest factors shaping public sentiment is interest rates. The Reserve Bank of Australia (RBA) has kept the cash rate at 4.35%, leading to mortgage repayment increases that have played a significant role in the rising cost of living. Since June 2022, mortgage repayments have accounted for nearly half of the total increase in living costs for employee households.
Although inflation is easing, many are unlikely to feel relief until interest rates begin to decline. Financial markets are currently pricing in at least three rate cuts by August, with an over 95% probability that the RBA will move to lower rates in the coming weeks.
While a reduction in borrowing costs could alleviate financial pressure, it comes too late to significantly impact public perception ahead of the federal election. Voters remain focused on their immediate financial struggles, meaning that, for now, claims of an inflation victory may not resonate as strongly as the government hopes.
