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For the past couple of years, most of us have become only too familiar with the terms high inflation and cost-of-living crisis. Fortunately, the inflation rate appears to be moderating, with the Reserve Bank becoming cautiously optimistic it may have tamed the inflation genie.
In the December 2023 quarter, the Consumer Price Index (CPI) – a measure of inflation – dropped back to 4.1%. The January 2024 monthly CPI was down to 3.4%, which is less than half the 7.5% monthly figure a year earlier.
Although inflation is easing, the recent pain created by rising prices has highlighted the importance of this key economic indicator for those in retirement and those approaching the end of their working life.
What is inflation?
Despite endless discussions about Australia’s recent inflation rate, many people are still confused about what it actually is and how it’s calculated.
Simply put, inflation is the increase in the prices of goods and services across the economy. When prices go up, you need more money to buy the same things.
The most well-known measure of inflation is the Consumer Price Index (CPI), which every quarter (and now monthly too) measures the percentage change in the price of a basket of goods and services consumed by Australian households. This hypothetical basket is tracked by the Australian Bureau of Statistics (ABS) and includes thousands of consumable items from food and drink to petrol, housing, health, education and childcare.
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