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In the first three months of this year,inflation for working Australians lifted by 1.7 per cent,with the ABS noting it was driven up by interest rate increases. The annual rate of mortgage interest rate inflation increased to 7 per cent from 5.4 per cent.

The bureau’s head of price statistics,Michelle Marquardt,said even though official interest rates did not increase in the March quarter,people were being hit by previous rate rises.

“The rise reflects the continued rollover of some expired fixed-rate[mortgages] to higher variable-rate mortgages,as well as flow-on effects from an increase in the Reserve Bank of Australia’s cash rate of 25 basis points in November 2023,” she said.

Since the Reserve Bank started increasing interest rates in May 2022,the overall inflation rate for working people has increased by 19.3 per cent. Over the same period,the official measure of inflation has lifted by 10.9 per cent.

Mortgage rates and insurance costs are behind the larger inflation hit to working families. Over that two-year period,mortgage interest rate inflation has grown by 142 per cent.

Insurance costs,driven by a global surge in re-insurance prices and natural disasters,increased by almost 28 per cent for working families over the same period.

Reflecting their different spending patterns,age pensioners enjoy the lowest inflation rate. It has fallen to 3.3 per cent after peaking at 7.3 per cent in December 2022. Age pensioners are much less likely than a person in employment to hold a mortgage while their insurance and food costs are also lower.

Their inflation rate is just below that of self-funded retirees which has fallen to 3.4 per cent from a peak of 7.6 per cent in late 2022.

People on unemployment benefits and other welfare payments outside the age pension are facing the second-highest inflation rate at 4.4 per cent over the past 12 months. This group was hit by the annual end of Pharmaceutical Benefits Scheme subsidies which pushed up their health costs by 8.9 per cent in the March quarter.

Treasurer Jim Chalmers is expected to use his May 14 federal budget to reveal a series of cost-of-living measures to help Australians deal with inflation.

On Wednesday,he said he was hoping to deliver a second successive budget surplus that would reduce inflationary pressures while also putting in place policies to protect Australians from higher prices.

“We all want inflation to moderate further and faster. A big part of the reason why it has come off so substantially is because we’ve run a tight ship with the budget,and we’ve provided cost‑of‑living relief that takes the edge off inflation rather than add to it,” he said.

“We’re making progress,we’d like to make more,and that’s why the budget will have a primary focus on inflation but not sole focus on inflation because there are other challenges,too.”

The Reserve Bank board meets next week with financial markets now expecting official interest rates to be held at 4.35 per cent.

Michelle Bullock will lead a meeting of the Reserve Bank next week.Credit:Oscar Colman

Figures this week revealed retail sales tumbling by 0.4 per cent in March with consumer spending falling in real terms over the past three months.

Chalmers said the fall in retail activity was a response to the Reserve Bank’s actions.

“This is what happens when interest rates have increased,and the economy is slowing,and it’s no surprise to us because we know that people are under pressure. We saw that in those very weak retail figures.” he said.

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