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Inflation. The news is not all bad.

What is inflation and why is everybody talking about it right now?

The price of money impacts home buyers, home sellers and homeowners. Here’s an explainer on what inflation is and how it affects the property market.

Inflation explained

The term inflation refers to an increase in the prices of the goods and services we spend our money on.

Economists keep an eye on the average cost of things to measure how much they change and how quickly prices go up.

The price of most things rises up over time (remember only needing $6 for a movie ticket?), but lately you’d have to be living under a rock to not have noticed the sharp jump in our average living expenses.

Why the spike?

In 2022, everyone is talking about what’s behind inflation and rising interest rates.

You could firstly point the finger at petrol. Fuel has become a lot more expensive thanks to production slowing down during the pandemic, plus other global issues. Higher fuel prices mean the cost of most things goes up; including food, which must be trucked around the country before reaching supermarket shelves.

A shortage of drivers is another problem. In Australia, we need people to drive trucks and because our borders were closed for a long time, there is a massive shortage of drivers. Those who are willing to get behind the wheel are asking for more money. As a result, up goes the price of delivery… and the cost of everything being delivered jumps as well.

Then we look to the supply chain. Global shipping was running like a well-oiled machine before the pandemic hit. All of a sudden, people went into lockdown, which caused delays. To add to this, consumers were all shopping like crazy and putting huge demand on suppliers. Empty shipping crates piled up in ports (not every country exports goods by ship) and hey presto — requesting a container delivery started to cost a lot more.

To add to all this there have been environmental issues like floods putting pressure on availability of goods, even when they are sourced here in Australia.

What does this mean for the property market?

The Reserve Bank of Australia responds to inflation by setting interest rates. With inflation on the rise,  some may say rates will be too. The thinking is if money is more ‘expensive’, people will slow their spending and inflation will slow.

However, a rise in interest rates impacts anyone who is either planning to take on a home loan or has a loan with variable rates. The higher your home loan interest rate, the higher your monthly repayments will be.

We’re happy to share our thoughts on home loans and connect you with a reliable broker who will explain your ideal options.

I hope you enjoy the read.

Matt Lancashire