It’s no secret the cost of living in Australia has soared over the past 12 months. What does it mean for you, and what can you do about it?

There can be no greater evidence of that than the skyrocketing fuel prices which have smashed through and well beyond the $2/litre barrier in early 2022.

It’s the first time many Australians have experienced such a rapid increase in the cost of living.

But there are courses of action we can take and strategies we can put in place to lessen the pain.

What is inflation?

Inflation is the increase of the price of goods and services and conversely, the fall in the purchasing power of the dollar.

In Australia, it is measured by the Consumer Price Index (CPI) with official figures revealing a 3.5% rise in 2021.

What it means for you

It’s all too obvious that while the CPI figures don’t appear that alarming, the cost of living is much, much greater.

That’s because the index doesn’t include many housing costs including the purchase of existing dwellings which have soared by up to 30% in many Australian capital cities.

Rent has increased by 9% in the capitals and up to 12% in some regional areas.

Fuel has risen up to 40% and that has a flow on effect to nearly every other industry.

Coles and Woolworths have hiked fruit and vegetables by 5%. While tinned baked beans and spaghetti has leapt 21%, cooking oil is up 19% and canned fruit 17%.

Many are already feeling the strain with Foodbank swamped by people in need.

A motoring association survey in Perth revealed 40% of people are considering driving less to save money.

What’s happening in Australia and abroad

Inflation can be caused by a range of factors but in this instance, it is due largely to the actions of the US.

Its Federal Reserve has printed vast amounts of money, injecting the financial markets with trillions of extra dollars.

Those actions have been compounded by the breakdown of supply chains as COVID makes its way through the country.

While the conflict in Ukraine and the sanctions imposed on Russia by the West have helped create a perfect storm.

The Reserve Bank of Australia has mercifully kept interest rates low but there are fears of an inevitable rise in line with the US which would potentially devastate the working class.

How to protect yourself against rising inflation

There are many strategies you can employ to counter rising prices. Here’s a few considerations.

Invest in value stocks – Value stocks are ones that are inexpensive relative to their earnings. In other words, they have a high yield and pay solid dividends. These typically perform best when inflation and interest rates rise.

Chase the profits – It stands to reason that profitable companies make the most money during times of inflation, boosting their profit margins by raising prices.

Golden rule – Physical gold is most attractive when inflation is higher than interest rates, as is the case at the moment. Gold has risen in value by more than 6% over the last 12 months, significantly outperforming other defensive assets, some which have fallen in value.

Fix your mortgage – With fears interest rates could finally rise after many years, it may be smart to consider fixing part or all of your mortgage. But get personalised, professional advice about this.

Seek that pay rise – Unions across the country are expected to seek annual rises of up to 6%, around double the average, to mitigate inflationary pressure on households.

The labour market remains strong with national unemployment at 4.2%, its lowest level in 13 years. If your boss won’t give you the rise you seek, consider looking elsewhere.

How to protect your business against rising inflation

Businesses need to react quickly in times of high inflation, reviewing their costs and changing price structures to remain viable. While employees will seek wage rises to keep their heads above water.

Not all companies will be able to afford their demands but there may be other ways to support them.

Communication – Transparency builds trust. Explain to your staff the costs of the business, how you are trying to reduce them and the benchmarks that need to be achieved so that they can be better rewarded. It may inspire them all to go the extra yard.

Furnish the nest – Consider a one-time cash bonus to appease struggling employees. Consider whether there are other benefits you can subsidise such as childcare, loan repayments, lunches, a fuel allowance or even the cost of parking. There may even be tax benefits in it for your company.

The whole package – Ensure staff fully understand their total reward package including salary, benefits, superannuation and shares. It may take the pressure off and buy you some time.

Good and bad times – Your staff may have been receiving regular pay rises above the rate of inflation for some years. Explain to them they may need to cope with a year or two where that is no longer the case.

Get advice today

Whether you’re an employee, business owner or retiree, now is the time to get advice about how you can manage your finances, and investments, effectively during times of inflation.

Get in touch now to talk about your needs. Contact us today for a no obligation discussion.

The information contained on this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation.

Contact us now for a no obligations discussion about your needs.