Why is everything becoming so expensive?
You might have found yourself asking this recently: at the supermarket, while buying a coffee, filling up the car with petrol or trying to book that long-awaited international flight.
Australians are being warned they could need to start paying more for everyday items as the cost of living reaches new heights.
So, why is this happening, which purchases are the worst-affected and can we expect any reprieve?
The short answer is inflation, but it's not that simple.
"The pandemic really distorted the economy. We couldn't spend on services, so we spent all our money on goods at a time when the production of those goods, whether it's household furnishings, whether it's a new car or a new boat or a renovation on the house. Unfortunately, the supply of those goods was constrained. So we had more demand, but supply, the prices went up. And of course, the danger is that that may become entrenched like it did in the 1970s and will take a while to get back down."
That's A-M-P Capital's chief economist Shane Oliver, who says the inflation rate relates to Australia emerging from COVID-19 restrictions.
According to the Consumer Price Index, Australia’s inflation rate increased by 3.5 per cent in the 12 months to the December 2021 quarter.
Mr Oliver says while the primary driver is the pandemic, Russia's invasion of Ukraine is also a factor.
"And the problem there is that Russia and Ukraine produce something like 25 per cent of the world's wheat exports. They also produce, or Russia produces, 11 per cent or so of the world's oil. So as a consequence of the sanctions and the war itself, that means that the supply of those items is no longer available globally to the same degree, or in many cases it's constrained, and that's causing again, another leap upwards in prices."
