Why Aussie families have to find an extra $15k a year


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Right now, a triple-whammy of pressures are dramatically reducing the spending capacity of Australian households.

But how much, exactly, are these inflationary costs affecting the average Australian family?


inflation costs groceries housing transport

The Reserve Bank of Australia has been rather busy of late. In May, following two years of inaction, the central bank increased the cash rate target for the first time since 2010. They followed this up with five more rate rises, moving the cash rate from 0.10% to 2.60%.

This has been an unprecedented series of rate hikes. The most dramatic, in fact, since 1995. For the 972,839 homeowners who took out a first home-buyer loan between August 2013 and today, this will be the highest interest rate they have ever had to deal with.

This rate rise, combined with the impact of dramatically increasing fuel and groceries costs is tearing into household budgets faster than anything we have seen in recent years.

The average owner-occupier home loan in Australia currently sits at around $600,000. In practical terms, these rate increases have pushed the average home loan rate up from around 3.45% to 5.95% - adding $10,806 to the annual cost of a mortgage.

According to data from the Grattan Institute and ABS, the average Australian household currently takes home an after-tax income of $93,667. The cash rate increase, therefore, will pull 11.5% of after-tax income from the wallets of Australian families. According to over 90% of the economists on Finder's RBA Cash Rate panel, there are more rate rises to come.

Households who rent are experiencing a knock-on effect, with rents up 12% across the combined capitals, according to data from Domain.

No wonder, then, that Finder's Consumer Sentiment Tracker (CST) has shown a dramatic surge in the number of Australians listing their housing costs as a major cause of financial stress - up from around 30% through 2021 to over 50% in October.

Groceries and energy

Mortgage costs, however, form only one part of a triple-whammy of pressures impacting Australian households. The Australian Automobile Association's Transport Index shows that the average annual spend on petrol for Australian motorists has risen from $2715 in Q2 2020 to $5115 in Q2 this year. Assuming only one car per household, this removes another $2400, or 2.6%, of the average income.

While stress around filling the tank affected only 10% of households for most of 2021, that figure rose to 32% in early 2022 and has stayed high since, despite the government's introduction (and then withdrawal) of tax relief.

The war in Ukraine has sent energy prices soaring, with Australian households facing electricity bill increases of 8-18% across different states. This may only be the tip of the iceberg, with the chief executive of Alinta Energy announcing this week that they expect electric costs to surge by a further third in 2023.

According to Finder's CST, the average annual energy bill for a household using both electricity and gas was around $2060 earlier this year. Assuming a fairly conservative increase of $250, this would cost an additional 0.3% of the average household income.

Finally, global supply issues and persistent La Niña have pushed the price of groceries up over the last two years - with the cost of vegetables, meat and bread up 15%, 10% and 8% respectively, according to ABS data. The more general category of food and non-alcoholic beverages is up 7% over the same period. Finder's CST puts the current weekly household grocery spend at $198 - meaning this food inflation has added $13 per week, or $676 per year to the average grocery bill - 0.7% of the average household income.

This means that the current increased costs of housing, energy and groceries are removing over 15% of household income for most families. The upshot is there is less to spend on family outings, entertainment and holidays. For any families with a higher mortgage, or a lower income - these effects will be even more pronounced.

Ways to save

These inflationary pressures mean that now is a more important time than ever to shop around, and make sure you are getting the best value for your money. While the average variable home loan rate sits around 6%, the lowest rates are close to 4% or under. Switching to one of these providers could save you significantly if your rate is higher.

If you're purchasing petrol, look out for free government price comparison services such as Fuel Check NSW. A Finder analysis of Fuel Check data shows that prices vary by as much as 15% between stations in adjacent postcodes. Timing your refill correctly could also help you save, with weekend prices slightly cheaper than weekdays on average.

If your energy bill is too high, consider looking for an alternative provider. Often, the best discounts are dished out to new customers along with bonuses like Everyday Rewards points or Qantas Points.

Finally, grocery costs are the one area where you may need to get on your bike. If you download both the Woolworths and Coles apps, you can compare the local store prices between the two and decide which items to buy where. Lower-cost supermarkets with a reduced range like Aldi are also an option for some Australians.

Overall, it pays to put a little work in and check regularly if you could be getting a better deal, especially when costs are rising. This shifts the power back to the consumer, where it should be.

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Graham Cooke is the head of consumer research at Finder, where he runs the global insights team. One of Australia's leading personal finance experts, he regularly discusses the housing market on ABC News, Channel 7 and 9 News, Today and Sunrise. A seasoned data journalist, Graham edits Finder's RBA Cash Rate Survey, Insights blog and Consumer Sentiment Tracker. He has written articles for publications including Westpac Wire, Homely and Soho and judged financial awards for the Australian Financial Review and the Australian Mortgage Awards. You can follow him on Twitter at @gcooke42.