Keeping Up with the Cost of Living: Understanding Inflation

Inflation is an economic concept that refers to the rise in prices of goods and services over a period of time. It indicates how expensive it is for people to purchase goods and services, which reflects on their cost of living. It is important that inflation remains low as high levels of inflation can have a negative effect on the economy. Inflation reduces the amount of purchasing power consumers have, as prices increase faster than wages. This leaves consumers with less money to spend, leading to a decline in consumer demand and overall economic activity. High levels of inflation also create uncertainty amongst investors, making them reluctant to invest in the stock market or real estate – both key drivers of economic growth. To keep inflation under control, countries typically implement monetary policy, such as adjusting interest rates and controlling the money supply. The Reserve Bank of Australia is responsible for setting monetary policy goals to ensure inflation remains low. Inflation is a complex economic concept, but knowing a little about it can help you better understand how your cost of living is affected by the economy. By staying informed, you can make decisions that are best for your financial wellbeing. It’s important to remember that inflation is not always a bad thing. Low levels of inflation are generally healthy for the economy and can help spur economic growth, allowing people to purchase the goods and services they need at affordable prices. Understanding how inflation affects your cost of living is an essential part of financial planning and can impact your ability to successfully invest, so stay informed and plan ahead!Want to discuss how Australia's current level of inflation is impacting the property market? Book in a discovery call with our of our expert property mentors to chat about your portfolio and prepare strategies to successfully weather whatever the future may bring.