Australia's cost of living crisis worsens with inflation hitting a new 32-year high of 7.8 per cent

Australia’s cost of living crisis has worsened with inflation hitting a new 32-year high of 7.8 per cent.

The consumer price index in the year to December surged at the fastest annual pace since the March quarter of 1990. 

This means another interest rate rise on February 7 is almost a certainty with headline inflation well above the Reserve Bank’s 2 to 3 per cent target.  

Australia’s cost of living crisis has worsened with inflation hitting a new 32-year high (pictured is a Woolworths shopper in Sydney’s eastern suburbs)

The Australian Bureau of Statistics figure, for the December quarter, was slightly less severe than the Reserve Bank’s forecast of 8 per cent, with the CPI rising by 7.3 per cent in the September quarter. 

Housing costs last year climbed by 10.7 per cent as food as non-alcoholic drink prices rose by 9.2 per cent and fruit and vegetable prices increased by 8.5 per cent following flooding on Australia’s east coast in early 2022.

A closer breakdown of grocery items showed a 12.2 per cent annual surge in bread and cereal prices and an even more severe 14.9 per cent climb in dairy prices. 

Petrol prices last year climbed by 13.2 per cent, after rising above $2 a litre in March as Russia’s Ukraine invasion led to sanctions that pushed up global crude oil prices.

With state borders open again, domestic holiday costs soared by 13.3 per cent over the year. 

Treasurer Jim Chalmer suggested inflation may have peaked. 

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Home borrowers, since May, have copped eight consecutive monthly rate rises and the big banks are all expecting the Reserve Bank to raise rates again in February by another quarter of a percentage point.

This would take the cash rate to a new 10-year high of 3.35 per cent.

Under this scenario, a borrower with an average $600,000 mortgage would see their monthly repayments rise by $93 to $3,303, up from $3,210. 

A couple in Sydney with a $1million home loan would see their repayments surge by $154 to $5,504 from $5,350.

Both increases are based on a Commonwealth Bank variable rising to 5.22 per cent from 4.97 per cent, to reflect the RBA cash rate climbing to 3.35 per cent from 3.1 per cent.

Economists and the Reserve Bank are expecting inflation to moderate from here but remain above the RBA’s 2 to 3 per cent target until 2025. 

Petrol prices last year climbed by 13.2 per cent, after climbing above $2 a litre in March as Russia’s Ukraine invasion led to sanctions that pushed up global crude oil prices (pictured is a Sydney service station)