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Has the cost-of-living crisis now peaked?

Finder's Cost of Living Pressure Gauge rose again for January.

Australia’s cost-of-living crisis has worsened further into 2024 as the high cash rate and higher costs of groceries, petrol, electricity and housing force more people to turn to their credit cards or dip into their savings. But experts believe there is light at the end of the tunnel and cash rate cuts on the horizon.

Finder’s Cost of Living Pressure Gauge, which tracks the financial stress faced by Australian families, climbed to 79 per cent in January.

Alarmingly, 78 per cent of Australians still reported significant stress over their finances, while 56 per cent of homeowners and 63 per cent of renters reported feeling financial stress due to their housing costs – a stark increase from 18 per cent and 32 per cent, respectively, in 2020.

The cost of living crisis continues to be an everyday battle for many Aussie households. (Source: Getty)
The rising cost of living continues to be an everyday battle for many Aussie households. (Source: Getty) (Samantha Menzies)

The current pressure reading, although 4 per cent lower than the peak of 83 per cent in April, underscores the ongoing financial challenges facing Aussie households.

This could be the last cost-of-living pressure increase for a while

At Finder, we expected the pressure gauge to trend down in December so, while this new 1 per cent increase is a minor surprise, it's not totally unexpected. The high inflation rate, which peaked at 7.8 per cent in December 2022, has since slowed to 5.4 per cent, but the cash rate has remained stubbornly high and the pressure of Christmas spending has added to existing stress for consumers.

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This may, however, be the last pressure increase we see for a while. The majority of Finder’s Reserve Bank (RBA) Cash Rate Survey panel of economists say the cash rate has peaked - meaning there are unlikely to be any more rate rises in 2024. Some panellists even predict a cash rate cut - though not anytime soon. The largest group indicates a possible cut in the final quarter of 2024, or 2025.

Finder RBA cash rate survey chart results about cost of living and cash rate cuts
(Source: Finder's RBA cash rate survey)

"There seems to be a shift away, internationally, from a rate-raising cycle as inflation has generally come down faster than expectations,” James Morley of the University of Sydney, said.

“This makes it more likely that the RBA is also done [with] its raising cycle. However, if services inflation comes in higher than expectations, they may well raise again. Certainly, it looks unlikely that they will start a cutting cycle anytime soon. There would need to be a substantial deterioration of the labour market and broader economic conditions. So, a cut seems unlikely until late 2024 at the earliest."

Also by Graham Cooke:

Mark Melatos, also of the University of Sydney, agreed: "Inflation remains significantly above the RBA's target band despite moderating in recent months. There is inconclusive evidence as to the extent of the dampening impact of monetary tightening on consumption.

“Moreover, house prices appear to have significantly decoupled from incomes and shrugged off the rate increases to date.”

Melatos added that, as long as low unemployment (effectively full employment) persists, he expects the cash rate is unlikely to be reduced, with further increases still possible.

But AMP's chief economist, Shane Oliver, disagrees. He thinks we’ll see the RBA begin cutting rates sooner.

"We expect a combination of falling December inflation data, weak December retail sales, and a rising trend in unemployment to head off another rate hike in February," Oliver said. "By June, enough evidence of weak growth and falling inflation will have accumulated to enable the RBA to start cutting rates.”

How to remain resilient in the cost-of-living crisis

While immediate rate cuts are improbable, there are signs of decreasing prices. Woolworths and Coles have reported deflation in grocery categories and, although inflation is subsiding, it remains above the RBA’s 2-3 per cent target.

This week, Prime Minister Anthony Albanese called his government members back to Canberra two weeks early to discuss potential changes to the contentious stage three tax cuts, and possible new cost-of-living relief measures ahead of the May budget.

The tax cut proposal is yet to pass, and until we hear what other measures the Labor government has in store, this is how you can protect yourself against the cost-of-living pressures.

Finder research earlier in 2023 showed that Australians with savings buffers were significantly less likely to report financial stress due to inflation. Savings accounts are, thankfully, the one group of financial products offering great value right now. Avoid the temporary high rates offered by some lenders, and look for a solid ongoing rate.

Returns north of 5 per cent are currently available from more than a dozen banks, with MOVE (5.7 per cent), ING (5.5 per cent) and both Macquarie and Teacher’s Mutual (5.5 per cent) leading the pack. The best current rates can be found on Finder.

While having a solid savings buffer can relieve some pressure - it's not a cure-all solution. Prioritising the repayment of high-interest debts - especially credit card balances - is also essential.

As we venture into 2024, adopting these strategies can significantly reduce financial burdens in the months ahead.

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