Inflation sounds like a complicated economic term, but it’s really just about how different things like prices and wages change over time. Let’s break it down in a way that makes sense for everyday life.

Consumer Price Inflation – Why Your Money Buys Less Over Time

Think about a beer at the pub, a carton of eggs, or a gym membership. A few years ago:

That’s consumer price inflation - when the cost of everyday things goes up over time.

If you head to the pub with $50 today, you can get a few drinks. But if inflation keeps rising, that same $50 might only get you two beers in a few years, even if the beer itself hasn’t changed.

Prices go up for different reasons. If the cost of producing beer rises - like the price of hops increasing or wages for hospitality workers going up - pubs charge more per drink. If rent for gym locations increases, membership prices follow. And when overall demand for something rises but supply is limited, businesses adjust prices to match what people are willing to pay.

Wage inflation happens when the average pay for a specific job increases over time, not because people are getting promoted, gaining more experience, or switching careers, but because employers have to pay more for the same role at the same experience level.

Think about a barista role. Five years ago, most cafes might have paid around $25 per hour. Today, cafes are offering $30 or more per hour for the same position, even for someone with the same level of experience. That’s wage inflation - businesses increasing pay across the board because they need to attract and retain workers.

This is very different from a promotion. If a barista starts at $25 an hour, gains experience, and eventually becomes a café manager earning $40 an hour, that’s career progression, not wage inflation. Wage inflation is about the entire market moving up, not just individuals advancing in their roles.

Some industries experience more wage inflation than others. Jobs that are in high demand but short supply see wages rise quickly. A good example is software development. Five years ago, a mid-level programmer might have been earning $80,000 per year, but now, even with the same level of experience, that same job might pay $120,000 or more simply because companies are competing harder to hire people with those skills.

Canwi applies both Inflation Rates and Wage Growth Rates as per below.

Step 1: On the planning screen click the button "Plan Settings"

Step 2: Under "Assumptions" you can adjust the:

Step 3: Click "Save"

Our default assumptions are based upon ASIC (the Australian regulator for financial services) requirements. Its well worth understanding what these mean and their impact.

ASIC requires us to take into account:
1. Consumer Price Inflation at 2.5% as this is the mid-point of the RBA's target for CPI

2. Wage Inflation at 3.7% which reflects the long term wage growth forecast in the 2023 Intergenerational Report provided by treasury.