Inflation hits 5.1%: what it means for your money now

A surge in inflation is bad news for consumers. Here’s how high inflation rates will impact your finances this year and what you can do about it.

After months of forecasting what the inflation rate will be for 2022 so far, the official numbers are out and it’s much higher than expected. The official inflation rate for the March 2022 quarter has been confirmed at 5.1%.

That’s a big deal because it’s the highest inflation rate we’ve seen in a decade and the biggest rise in inflation in over 2 decades. The RBA aims to keep the inflation rate around the 2% point, so that’s much higher than ideal.

What a 5.1% inflation rate means for your money

This is bad news for all of us as the cost of living continues to rise. However, there are things you can do to help protect your finances against inflation. Here’s what 5.1% inflation means for your money and some tips for dealing with the rising cost of living.

The cost of everyday items has increased

Inflation measures how much the cost of living has increased. Figures released today confirm that overall the cost of living has increased by 5.1%. That means you’re now paying over 5% more for your everyday items, including groceries and household essentials, compared to the same time last year.

You’ve probably noticed this already, especially with soaring gas prices. Rising costs are here to stay and, in fact, could continue to climb even higher as inflation rises throughout the year.

What you can do:

  • Examine your expenses and see where you have the ability to cut back.
  • Switch to cheaper options like Aldi and private label items to save money.
  • Consider cutting back on some luxuries such as takeout and restaurants.

If you want more inspiration, here are 50 ways to save money on everyday items, products and services.

Sarah Megginson, research expert, intervenes: raise the minimum wage make the cost of living crisis better or worse?

Your money in the bank goes back

As the cost of living increases, the value of your money decreases. If you just got your money in a bank account, that’s actually a throwback. You need to find ways to grow your money as inflation rises.

What you can do:

  • Put money in a high-interest savings account (these rates are always lower than inflation, but a savings account is a useful product if you don’t want to risk your balance in the stock market or elsewhere ).
  • Consider investing the extra money in an index fund or adding it to your super via a salary sacrifice.
  • Consider other ways to earn a return, such as Finder Earn, which offers a 4.01% return on your capital.
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Your purchasing power has gone down

If your income remains the same as last year, your purchasing power has decreased and you have effectively taken a 5.1% pay cut. This is because as the cost of living rises, your money will buy less than it did last year.

What you can do:

  • Find out how much salary increase you need this year for inflation and talk to your employer about how to achieve it.
  • If you’re unable to get a raise, look for other ways to increase your income, such as a side hustle, extra casual work, or joining the gig economy.

Your mortgage rate is about to increase

With inflation rates soaring, economists say the RBA is almost certain to raise the cash rate. With a rise in the cash rate comes a rise in mortgage rates soon after (the big 4 banks are already planning a rate hike). This means that your home loan, unless it is fixed, could increase significantly this year and your monthly repayments will increase.

What you can do:

  • Compare home loan rates and refinance to a better deal.
  • Consider locking in your rate with a fixed rate home loan before rates rise.
  • Use an offset account to reduce your interest payments.

We can help you deal with rising inflation. Here’s how to beat gas prices, the pay rise you need for inflation, and 50 ways to save money right now.

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