June 16 2022
Investment Updates

Inflation and how it impacts your super

Apples increasing in size from left to right Apples increasing in size from left to right

You may have noticed recently, your money isn’t buying nearly as much as it used to. From petrol to electricity, groceries and fresh vegetables, the cost of living has risen steeply, with no signs of slowing.

What’s going on with rising prices?

Inflation. Inflation measures the rate of increase in prices of a basket of everyday items over time. Or simply, the change in the cost of living over time. The most widely used measure of inflation in Australia is the Consumer Price Index (CPI). The Reserve Bank of Australia is responsible for keeping Australian inflation under control. The Reserve Bank uses the cash rate as a tool to help keep inflation within its target range of between 2% and 3% per annum on average, over the medium term. If inflation is expected to be too high, or too low the Reserve Bank can move the cash rate up, or down, to try to achieve their inflation target.

Over the twelve months to the end of March 2022, Australia’s CPI rose 5.1%. When the demand for goods is greater than their supply the result is often inflation. Inflation is rising now for a number of reasons:

  1. A recovering domestic economy and strong jobs market - people spend when they have more money and companies tend to raise prices when people are buying more.
  2. War – since Russia’s invasion of Ukraine, gas and oil prices have skyrocketed while grain and fertilizer availability have been impacted.
  3. Supply chain problems due to worker shortages, factory shutdowns (notably in China), and clogged shipping routes.
  4. Extreme weather in Australia has also impacted the supply of fresh produce. 

Why is inflation important?

Over time, small price increases add up. When things get more expensive, your money can’t buy as much and your dollar will not go as far in the future as it did today. Therefore, to ensure your super nest egg remains on track to meet your long-term retirement needs, you need to protect the purchasing power of your savings - to make sure it can keep up with inflation.

The price of takeaway coffee*   

In 2022 In 10 years In 20 years
$4.50 $5.76 $7.37
In 2022 $4.50
In 10 years $5.76
In 20 years $7.37

*Based an annual price inflation rate of 2.5% each year 

How can I help protect my super from inflation?

Don’t make any rash moves. Take the time to assess whether you’re comfortable with your investment option for the long-term. Over the long-term, staying invested in a well-managed and appropriately diversified investment option can help you earn enough to beat inflation.

At Rest, we offer a range of diversified options - each with varying risk profiles and investment objectives set as a percentage above the rate of inflation. Our aim for your super savings isn’t just to keep pace with the increase in the cost of living, but to grow above it. We aim to achieve this by investing in growth assets like listed shares and private equity which have the potential to outperform inflation over the long-term, as well as unlisted investments such as unlisted property, unlisted infrastructure and agriculture - all of which have features that can help protect against the impacts of inflation over the long-term.

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