The RBA raised the cash rate by 25 basis points to 4.60% this afternoon — unanimously, and the fourth increase this year. It’s the highest the cash rate has been in 15 years.
If you’re wondering why your budget feels increasingly tight, even in months when nothing much has changed, today’s announcement goes some way towards explaining it.
Moorr co-creator Ben Kingsley and behavioural economist Evan Lucas unpacked it all during today’s LIVE Economic & RBA Update.
What’s driving inflation this time?
Three things featured prominently in today’s RBA announcement.
- The Middle East conflict
The conflict has broadened, pushing global energy prices well above what the RBA had assumed in its August forecasts. And it doesn’t stop at the petrol pump. Higher energy costs can flow through to freight, food production and the everyday goods and services we buy.
- The global AI boom
Yep, even AI has a part to play. Rapid growth in AI-related demand is pushing up global prices for technology-related goods. Think computer chips, servers and the infrastructure needed to support data centres.
- Australia’s domestic capacity pressures
In simple terms, our economy is struggling to increase how much it produces without costs rising. When demand grows faster than businesses can increase supply, it creates pressure on prices.
But there was another important detail in today’s statement.
The RBA runs its own business liaison program, with economists speaking directly to Australian businesses rather than relying solely on published economic data. And those businesses are reporting that they’re experiencing cost pressures and either raising their prices already or planning to do so.
As Evan highlighted during the session, that’s a warning about inflation pressures that may still be working their way through the economy.
Why does everything still feel so expensive?
Here’s something Ben and Evan discussed that helps explain the feeling.
We tend to talk about inflation as an annual number. It might be 3.5% this year, another figure next year and something different again the year after.
But those increases stack up.
Ben and Evan highlighted that, based on the cumulative inflation figures discussed during the LIVE, something that cost $1 in 2021 would cost approximately $1.22 today. That means you’re paying roughly 22% more for the same thing.
And when inflation falls, it doesn’t usually mean prices go back down. It means they’re rising more slowly. So even if your income has increased and you’ve kept your spending habits relatively unchanged, you may still find that your money doesn’t stretch as far as it used to.
That’s why looking at inflation in isolation doesn’t always reflect what we’re experiencing in our own households.
What can you actually control?
You can’t control global energy prices. You can’t control the AI investment boom. And you can’t control what the RBA decides in November.
But you can get a clearer picture of where your own money stands.
Spend a few minutes in Moorr reviewing your income, regular expenses, loan repayments and cash buffers.. and ask what your position looks like if the cash rate reaches 4.85%.
You might discover nothing needs to change. You might spot an expense that’s crept up since you last looked, or a buffer worth rebuilding.
And if reviewing your numbers raises the question of “Is my home loan still competitive?”, head to the Professional Services section in Moorr to connect with a mortgage broker who can review your current setup.
