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Record inflation to keep pressure on households

The latest CPI figures shows inflation has risen to 5.1 per cent, putting increased pressure on mortgage holders and households according to experts.

Ray White Group Chief Economist Nerida Conisbee said rising inflation would push the Reserve Bank of Australia (RBA) to lift interest rates sooner.

“As we came out of the worst of the pandemic, it was always expected that inflation would be high however it was expected to be transitory,” Ms Conisbee said.

“Now there are other external factors which are keeping prices higher for longer – in particular, the war in the Ukraine, blocked supply chains and continued shut downs in China.

“Higher interest rates won’t fix any of these but it will slow down the economy and prevent it overheating.”

Ms Conisbee said higher interest rates would have a flow-on effect on house prices.

“In the first quarter of 2022, prices have fallen slightly in Sydney and Melbourne,” she said.

“In other capital cities, price growth has slowed.

“For the rest of the year we can expect to see much slower market conditions – prices won’t fall everywhere but we will not see the same market conditions in 2022 as we saw in 2021.”

One of the key drivers of higher inflation has been rising construction costs (up 5.7 per cent), which is also pressuring builders and renovators and means fewer new homes will be built according to Ms Conisbee.

“Construction costs are continuing to rise,” she said.

“It is in part being driven by blocked supply chains but also a flow on from the 2020 bushfires (timber shortage) and a problem accessing labour.”

Ms Coinsbee said rising rents would also continue and put pressure on tenants.

“Rents are rising at a rapid rate, up 17 per cent since the start of the pandemic.” she said.

“Unlike house prices, rents are going to keep increasing through 2022 as international borders re-open.

“Longer term, rising construction costs are a further challenge.”

Rising prices are also making people feel more negative about the economic outlook and prospects of owning a home.

New data from Finder has found the number of Aussies struggling to afford a home has risen, with 26 per cent feeling extremely negative towards the prospect, compared to 15 per cent at the same time last year.

Senior editor of money at Finder, Sarah Megginson said 58 per cent of Australians did not expect a pay rise in the next 12 months while 13 per cent of Australians – equivalent to 2.5 million people – feel either somewhat insecure or very insecure about their current job.

Ms Megginson said if Australians were worried about cost of living pressures there were some things they could do.

“The increased costs are here to stay, and in fact, could continue to climb even higher as inflation goes up throughout the year,” Ms Megginson said.

“If you’re struggling to save money or keep up with your monthly outgoings, shopping around for better deals on some of your regular expenses is a good place to start.

“It’s also critical to know what’s going in and out of your account, so you can budget accordingly.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.