Inflation has fallen from its peak in December 2022 to 2.1% in the year to June, within the Reserve Bank's target range. However, the biggest inflationary shock in a generation has left Australia a much more expensive place to live. While the pace of price increases has slowed, prices remain at elevated levels and are unlikely to fall broadly.
The cost-of-living crisis will only end when wage growth compensates for the cumulative inflation since 2020. Economists measure this through purchasing power, comparing the consumer price index (CPI) with the wage price index (WPI). If inflation averages 2.5% and wage growth 3.5% annually, it could take at least three more years for living costs to feel normal again.
Broader measures, such as average weekly earnings, show a slightly more optimistic picture. Weekly earnings have caught up with CPI over the past two years, but the selected living cost index, which includes mortgage interest rates, indicates that cost-of-living pressures may persist until early 2029. The treasurer, Jim Chalmers, has shifted focus from inflation to addressing these ongoing challenges.
