While inflation has implications for housing demand, housing itself influences inflation. By understanding how inflation and housing fit together, the market outlook for the year ahead becomes a little clearer.
ABS figures showed the highest annual rate of inflation in June 2022 in almost 32 years. As we head into the new financial year, annual inflation is expected to peak at over 7%, according to the Treasury and the RBA. This means household budgets will be tighter, savings will be reduced and housing demand will likely be lower.
How does the housing market impact inflation?
A good place to start is looking at how housing is factored into inflation. Inflation measures the change in the Consumer Price Index (CPI), which tracks the cost of a basket of goods and services consumed by households, specifically bought from other sectors; governments and businesses. June also saw a 1.6% annual increase in the value of rents.
How does inflation impact the housing market?
Inflation impacts housing markets both directly and indirectly. But whether these impacts are ‘good’ or ‘bad’ depend on what is driving inflation, as well as what else is going on in the economy at the time.
So, how long will it take to curb inflation?
Inflation is expected to remain high in 2022, with a mix of domestic and international factors putting upward pressure on prices. Internationally, these include Russia’s invasion of Ukraine, the resurgence of COVID and COVID lockdowns in China, and capacity constraints in some segments of the economy. Domestically, extreme weather events have contributed to increases in some food items, and resilience in household spending remains an uncertainty.
If you need any assistance when it comes to understanding inflation and if affects your financial goals, please reach out!
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