Cost crisis: Where your budget is about to be squeezed even harder

Keeping a roof above your head and the lights on are among the rising costs giving Australians – and economists – major cause for concern, with warnings the country could be heading for a recession by the end of the year.

Australian Bureau of Statistics data has found annual living costs increased for all household types by between 2.3 per cent and 4.2 per cent last year. This year, inflationary pressures have resurfaced faster than expected as higher global energy prices add further pressure on households.

“Only 12 months ago we’d effectively declared victory on inflation. But it picked up again in the second half of last year because growth has been running above what the economy can sustainably handle,” says Belinda Allen, head of Australian economics at the Commonwealth Bank.

Some of the rising costs are obvious – like housing – but others are harder to spot, like persistent increases on the cost of transportation, parking, basic household items and childcare, putting many households further behind than a year ago.

Banks have so far passed on two interest rate rises this year, adding about $120 a month to repayments on the average $736,000 home loan, which is equivalent to $1440 a year. This has tipped nearly a million households into extreme mortgage stress, according to Roy Morgan research. Renters also face persistent rental increases.

But potential further interest rate rises are just the start of the financial pain predicted for the coming months, as groceries, petrol, health premiums, phone bills and insurance costs are set to increase.

The global oil supply shock is expected to keep petrol prices and, in turn, inflation higher for longer, research from the Bankwest Curtin Economics Centre (BCEC) shows, despite some relief this week after Labor announced a cut to the fuel excise for three months.

“This isn’t just another price spike. It’s a full-scale economic shock hitting households,” warns BCEC Professor Alan Duncan. “If this shock drags on, it risks becoming a serious inflation problem that’s much harder to contain.”

But petrol prices are just the start. From April 1, the average health insurance premiums will also rise by 4.41 per cent, adding up to $160 a year depending on the level of cover, with some insurers raising rates by up to 5.98 per cent.

This marks the steepest hike in a decade and some comparison site analysis suggests that premium increases of up to 25 per cent could be passed on by some health funds.

Meanwhile, annual government energy rebates that households received since 2024 have now disappeared, adding $450 in costs, with the first unrebated quarterly bills of 2026 hitting households now.

The Australian Energy Regulator warns that electricity prices are expected to rise by an average of 10 per cent in 2026, or even higher in some regions. These rising energy costs will push inflation higher than previously forecast, slowing Australia’s economic growth and keeping interest rates higher.

That’s not all. Water and gas bills are also increasing, meaning Australians are paying hundreds more just to keep a roof above their head and the lights on. Telstra has also raised the prices of its mobile phone plans twice in the last 12 months.

HSBC Australia chief economist Paul Bloxham this week warned the combination of the war and high interest rates is set to sharply weaken household disposable incomes and slash spending.

The economy has been operating well beyond its capacity, and an economic downturn will be needed to get inflation to head back towards the Reserve Bank’s 2.5 per cent inflation target, he says.

Bloxham says there’s a real chance the June quarter could be followed by a further contraction in the September quarter, which would plunge the nation into recession.

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