In the last quarter of 2022, the annual rate of inflation in Australia jumped to 7.3%, the highest rate since 1990 . A range of different factors is driving up the cost of living in Australia, but three of them are having the biggest impact.
3 Factors Driving Up Cost of Living in Australia
Rental crisis in Australia
One of the largest increases in recent years has been the cost of rental property in Australia. Whether you want to be in one of the big cities or in a smaller town, it is becoming increasingly difficult to find affordable housing. The lack of suitable properties is driving up rental prices creating a rental crisis, according to consumer website Finder that suggests that rental prices have risen by 9% in the past year vs. only 2.5% for average wages . This led to many families being priced out of the rental market creating a rental crisis in Australia.
The situation worsened because of the pandemic, but the rental crisis predates 2020 and is due several contributing factors, such as an increase in shorter-term rentals and a lack of investment in social and affordable housing. Longer-term trends such as movement away from capital cities, smaller household sizes, and a decreasing rental supply have also contributed to the problem.
According to Proptrack, year on year growth in demand for rental properties is far outstripping supply due to an unprecedented increase in immigration since Australia re-opened its borders. In Greater Melbourne, for example, the number of potential renters per property listed for rent is 5.6, representing an increase of 32.1% on the previous year . The impact of this is soaring rental costs to as much as a 20% increase in the median weekly rent to $480 for a unit in Melbourne . Sydney, Brisbane, Canberra and Adelaide are all facing similar issues with lack of affordable supply.
Impact of the COVID pandemic
Economists suggest that the high inflation rate is a function of Australia emerging from COVID-19 restrictions. The Australian economy recovered more strongly than expected from the pandemic, and prices are now higher than pre-pandemic and rising fast. During the pandemic, supply of services was restricted – people couldn’t go on holiday, eat out or in some cases, even travel to work. This meant that more money was being spent on goods, such as TVs, exercise equipment and groceries at a time when production was constrained which led to prices for these goods increasing.
Supply chain difficulties during the pandemic brought global trade to a halt in some industries, especially those reliant on parts from China, such as cars, electronics and, most worryingly, critical pharmaceutical production. As the world began to open up post-pandemic, the pent up consumer demand for work-related travel, holidays and hospitality cause inflationary pressures. Lower or near zero interest rates during the pandemic period also fueled housing demand resulting in the excessive cost increases now seen.
War in Ukraine
Just as economies began to emerge from the restrictions of the pandemic in early 2022, the war in Ukraine created further disruption to global supplies, particularly gas, oil and food products such as wheat and edible oils. This resulted in a huge surge in energy prices globally pushing inflation up in many economies. Increasing energy costs impact every area of business and life from the cost of your bus ticket and heating your home to your weekly grocery shop. All businesses are grappling with how much of their increased cost to pass on to their customers and in some cases, there’s little scope for businesses to absorb cost increases if they are to survive the latest economic pressures.
Is Australia Still a Good Place to Live?
Although inflation is increasing and the cost of living in Australia is higher than many other countries, you can still create a better standard of living in Australia because average wages are higher than in many other countries. This means even after paying all your living expenses, you may be able to send money home. The Western Union money transfer app makes this process very straightforward. You can send money in person from one of our agent locations across Australia , including many Australia Post locations, or you can transfer money from the Western Union Australia website.
If you require further help to make cross-border payments, you can check our FAQs.