Last updated: December 18th, 2025
Australia has felt expensive for a while now. Groceries cost more (rising 3% over the year to October 2025). Power bills sting (jumping by more than 30% year-on-year at their peak). Big purchases get postponed “until next year.”
And for many households, money stress spills over into marriage strain and mental health issues.
According to the latest ABS spending data, Australians spent 5.6% more than a year ago (over the 12 months to October 2025).
And that extra money isn’t just going on essentials.
We’re spending more on clothes, furniture, travel, and eating out – early signs that consumer confidence, while fragile, is returning.
| Key Takeaways: |
|---|
| An uptick in inflation and interest rates continues to erode Australians’ disposable income and savings. |
| Government measures, including tax cuts in 2026-27, could help reduce cost of living pressures. |
| Wages are finally outpacing inflation, but it’s unclear whether that’s enough to deliver meaningful real income growth for households. |
Spending rose across the board during 2025, on both non-essentials and everyday necessities.
However, Aussies still coughed up more for essentials:
- Essentials spending rose 6.5% (to October 2025) compared to 3.3% the year prior.
- Non-essentials spending rose 5.1% to October 2025, compared to 2.8% the year prior.
In other words: Australians are spending more on fun – but they’re being forced to spend even more on the basics.
Above: Government payment recipient households saw the largest annual surge in living costs of all household types in the September 2025 quarter – 0.7pp more than CPI.
Everyday costs are still doing the damage.
According to the ABS National Accounts Data, the winding back of electricity rebates pushed power bills higher again.
At the same time, Australians were forced to spend more on the unavoidable stuff: insurance, rent, healthcare, and food.
That shows up clearly in the numbers.
Spending on non-essentials?
Flat.
In other words: Australians aren’t splurging – they’re just paying more to stand still.
Yes, Australia offers a high standard of living. That’s why people want to live here. But the day-to-day costs make it harder to get ahead, even when you’re doing everything “right.”
With a run of 13 consecutive cash rate hikes in two years – offset by just three cuts in 2025 – the cost of living in Australia is still on the rise.
So the obvious question is – any real relief in sight?
(Related: How A Recession Hits Ordinary Australians).
Why Your Bills Are Rising Faster Than Inflation.
Our current annual rate of inflation (October 2025) is 3.8%, with the largest increases being seen in housing and rents, food and non-alcoholic drinks, and recreation.
After falling to within target in the March and June quarters, inflation has now jumped well above the Reserve Bank of Australia’s (RBA) desired range of 2-3%.
The trimmed mean, aka underlying inflation, is also back above 3% – and that’s what the RBA really cares about.
Higher-than-expected price growth has eroded progress that saw interest rate cuts delivered in 2025, bringing the cash rate down from 4.35% to 3.60%.
Many Aussies say they plan to cut back on spending this Christmas.
But the true extent of demand will be revealed when the CPI result for December is released on 28th January 2026.
Important!
Rapid cost increases usually prompt the RBA to raise rates, dampening borrowing and demand.
And if you have a mortgage, 2023–24 was brutal.
A rapid run of interest rate hikes - combined with borrowers rolling off ultra-low fixed rates onto much higher variable rates - sent repayments soaring.
Above: Many Australians were forced to divert 30% or more of their disposable income to servicing their loan.
ABS Living Cost Index data released in September 2024 found that household costs saw the highest annual rise for working families due to paying more interest on their mortgages.
Important!
Interest charges increased by 18.9% over the year to September 2024, which was down from a peak of 91.6% annual increase recorded in the June 2023 quarter.
The latest figures for September 2025 show smaller rises in living costs for most Aussies. Falling health, insurance and interest costs made a difference.
Households now being hit the hardest by increased living costs include:
- People on government payments, who were more affected than most by recent rises in electricity costs and changes to the timing of government power bill rebates.
- Pensioners facing increased costs for housing, food, and healthcare. Age pensioners struggled with an increase in property rates and charges.
While cash rate easing has reduced the pressure, paying to keep a roof over your head is still incredibly tough.
Expert Tip.
The ABS’ LCI data differs from CPI because it includes mortgage interest charges rather than the cost of building new dwellings.
Rents have been a major contributor to living costs, rising 4.2% annually from October 2024 to October 2025, based on the ABS’ latest complete monthly CPI figures.
Rent inflation was 7.8% in the March 2024 quarter, which at the time was the largest rise since March 2009.
Important!
Rents would be even higher if not for a 10% increase in Commonwealth Rent Assistance (CRA) subsidies in September 2024, and a 15% increase in 2023.
With fewer properties available, asking rents in capital cities rose 5.3% in the year to November 2025, according to property data group SQM Research.
Asking rents for units increased 5.6% for the year to November 2025 - perhaps reflecting a shift away from expensive houses.
The average weekly rent in a city now stands at:
- $881 for a house.
- $649 for units.
- $757.73 across houses and units.
However, SQM forecasts rental growth could be more in line with inflation in 2026 (2-4%), due to a better balance between new housing supply and expanding demand.
AMP chief economist, Dr Shane Oliver, highlighted in November 2025 that the ratio of average dwelling prices to average wages and household income has both more than doubled since 2000.
Oliver said low housing affordability was deepening wealth inequality and likely contributing to rising homelessness.
(Related: Will Australia Go Into A Recession In 2026?)
Until the supply-vs-demand imbalance is fixed, home ownership will remain out of reach for many.
With supply in shortfall, any uptick in demand simply drives up house prices further.
For instance, an unusual surge in home values in October 2025 coincided with the expansion of the Australian Government’s 5% Deposit Scheme, according to property insights firm Cotality.
Why Your Money Doesn’t Go As Far Anymore.
When it comes to CPI inflation, other major costs include:
- Electricity, which rose 37.1% in the 12 months to October 2025, due to rebates tapering off.
- Food and non-alcoholic drinks, which rose by 3.2%, with meat and seafood 3.8% more expensive.
- Medical and hospital services, which rose 5.1% annually.
(Related: Australian Inflation Rate: Will It Drop In 2026?)
Did You Know?
The annual change in new dwelling prices was 4.8%, down from 5.1% in June, and considerably lower than a peak of 20.7% in 2022.
Food prices have been lowering, but stocking up on groceries was still more expensive compared to 12 months ago.
The main contributors to increases in food prices were:
- Lamb and goat +14.6%.
- Beef and veal +10.5%.
- Coffee, tea and cocoa +16.4%.
- Eggs +6.2%.
- Take-away and meals out +3.6%.
- Fruit and vegetables +1.8%.
Above: Overseas demand for Australian meat lifted lamb and beef prices domestically.
But Wait, We’re Getting Wealthier?
While our collective household net worth has increased, around 70% of that wealth is tied to property ownership, and therefore home price values.
Above: 70% of Australian household wealth is tied to household values.
Supply shortages that are driving up home values saw household ‘non-financial asset’ wealth grow by 1.9% in the June quarter of 2025, based on ABS data.
- Financial assets of households, like super, equities, and cash deposits increased by 3.7% (up from 0.3% in March) - largely due to strong share market performance, and end-of-year voluntary super deposits.
- Lower-income earners, for whom home ownership and investing are less realistic, are losing more and more ground as inflation and higher rates persist.
It seems to be a case of the rich getting richer while others are left behind.
Recent data from the US Federal Reserve reveals American households have become wealthier since the pandemic, but the top 0.1% saw the biggest increase.
Did You Know?
The US’ mega rich now account for a near-record 13.6% of total household wealth. The lower half of households in the US hold just 2.5% of the country’s total household wealth.
What’s The Government Doing To Bring Down Living Costs?
In its 2025-26 budget released just months before the May election, the Albanese Government announced a series of measures to help reduce living costs.
Cost of living was a major political talking point during the 2025 campaign.
The Coalition tried to make the case that Labor’s leader was “weak, woke and sending you broke.”
But Labor prevailed.
Promised tax cuts from Labor that will now come to pass include:
- Workers earning between $18,201-$45,000 get a tax cut of 1% in 2026, and a further 1% in 2027 — bringing their tax rate down to 14% (from 16%).
- Average earners will pay $268 less tax in 2026-27 under the changes, and save $536 in 2027-28 (compared to 2024-25 tax settings).
Other initiatives already underway include efforts to reduce childcare costs, reduce student debt, lower the cost of PBS-listed medicines, and expand Medicare.
(Related: Will The RBA Finally Drop Rates In 2026?)
In December 2025, Treasurer Jim Chalmers signalled government spending would be reined in - to the tune of $20 billion in cuts — ahead of the mid-year budget update.
The savings will come from a mix of reprioritisation of previously committed funds and less use of consultants, contractors and labour hire.
The popular, yet pricey, power bill subsidy scheme won’t be repeated, to help balance the national books.
How Do We Measure The Cost Of Living In Australia?
Consumer Price Index (CPI) is the Australian government's go-to tool for estimating living expenses.
Measuring long-term, high-level inflation (known as "headline inflation"), it monitors price movements in a "basket" of everyday goods and services from 11 categories.
Here they are, ranked from highest to lowest.
| Housing | 21.39% |
| Food and non-alcoholic beverages | 17.44% |
| Recreation and culture | 12.74% |
| Transport | 11.45% |
| Furnishings, household equipment & services | 8.02% |
| Health | 6.73% |
| Alcohol and tobacco | 6.58% |
| Insurance and financial services | 5.58% |
| Education | 4.69% |
| Clothing and footwear | 3.25% |
| Communication | 2.13% |
Source: Australian Bureau Of Statistics, Annual weight update of the CPI and Living Cost Indexes.
Eagle-eyed readers will notice that housing is over-represented in the above CPI index, and will wonder whether Australia's skyrocketing housing costs are artificially driving up the official reported CPI level.
The correct answer is - yes and no:
- Mortgage repayments are not included in the CPI, and neither is the cost of buying established dwellings.
- Rents, the cost of new houses (excluding land value) and the cost of major alteration are included.
Important!
In October 2025, the ABS consolidated its CPI data into one complete monthly CPI release, replacing the quarterly CPI and monthly CPI indicator measures.
The change to a monthly CPI includes a change in the frequency of data collected to determine price growth:
- Each month, prices of 87% of the basket by weight will be examined (compared to 50% previously).
- Items like financial services (4% of the basket) will be priced quarterly, and 9% — for items like school fees and insurance — priced annually.
When Will Australians’ Living Wage Increase?
Of course, whether you feel life is affordable also comes back to how much you’re earning.
ABS data ABS data (as of August 2025) shows the median Australian employee earnings are:
- $42.90 per hour.
- $1,425 per week (up $26 from 2024).
- $1,741 per week for full-time employees.
That roughly equates to a median annual income of around $74K.
Professionals and managers tend to earn more, the industries with the highest weekly earnings were mining, utilities and financial services.
Expert Tip.
The median is the middle value in a range and offers more useful insight into wages than an average metric, as it's less affected by outliers and skewed distributions.
The most recent WPI rise (September 2025) was 0.8% for the quarter and 3.4% for the year - beating headline inflation for the same period (3.2%) and core inflation at 3.0%.
Australian employers believe wages will increase 2.7% in the year to October 2026 - it’s unclear if that will outpace inflation.
Analysis by Janine Dixon, Director of Policy Studies at Victoria University in November 2025 found that consumer purchasing power has been in decline from mid-2020 until very recently.
Above: Australia’s post-COVID decline in ‘real wages’ (wages accounting for inflation) is the largest in recent history.
Wages that aren’t keeping pace with living costs limits people’s ability to save, making the transition from renting to home ownership increasingly hard.
- Recent modelling shows Australians need 11 years to save a 20% deposit (based on a 15% savings rate).
- And affordability of houses has plummeted: the median house is worth 8.9 times the average income.
The Cotality Housing Affordability Report found servicing home loans was eating up more people’s income - at 45% in 2025, compared to 29% in 2020.
Exacerbating this issue is that:
- House price values continued to rise in 2025. In the September 2025 quarter, the rate of growth was the fastest it had been in four years.
- Population growth through immigration continues to put pressure on demand and prices.
- Lack of high-density housing reduces affordability and pushes people to outer suburbs, increasing their transport costs.
(Related: Best Cryptocurrency Exchanges In Australia).
How Many Aussies Are Struggling With Living Expenses?
In a 2025 report, the Australian Council of Social Service (ACOSS) found that 3.7 million Australians (14.2%) live below the poverty line of 50% of median income.
The ACOSS report revealed poverty was worsening:
- 1 in 7 Aussies were living in poverty in 2022-23.
- That’s up from 1 in 8 people in 2020-21.
Obviously, people on the lower end of the salary range are doing it toughest.
Australia’s minimum wage increased by 3.50% on 1 July to $948 per week (~$49,300 annually).
The Australian Council of Social Service (ACOSS) expressed concern that if the Government doesn’t increase support payments and boost social housing, more Australians would be at risk of experiencing homelessness.
How Can Australians Ease Cost-of-Living Pressures?
Avoiding spiralling debts and making your money work harder starts with having your fundamentals in order. That includes:
| What You Can Do | Why It Matters |
|---|---|
| Developing a budget that clarifies your income and expenses, including a clear picture of your current spending habits and commitments. | Without this, you’ll find it harder to stay on top of larger, less frequent bills (e.g., rego) or see where the biggest cost savings can be. |
| Setting up a foolproof savings plan by automatically diverting an amount from your pay into a different account. | Having a savings buffer helps you avoid using more expensive credit products (like payday loans) down the line to fund unexpected costs. |
| Sustainably growing your wealth by considering low-risk, long-term investments, which could include a mix of fixed interest (e.g., term deposits, bonds) and growth assets (e.g., stocks). | Money kept in the bank rarely earns interest above and beyond inflation growth. Investing provides an opportunity to improve returns on your hard-earned income. |
But you also need to think about ways to increase income and reduce expenses. One oft-overlooked strategy that is a clear winner — asking!
You should be:
- Making a case for a raise in your job if you haven’t had one in a while, seek out promotions or consider a move to a higher-paying role with another employer. A number of Australians are also taking up side gigs for extra cash, or making money through the sharing economy (e.g., renting out a spare room, your car, or your parking spot).
- Asking your current providers for a discount. For instance, if you’re driving less you could ask your car insurer for a discount. If you see a better deal advertised, hit up your current provider and see if they value your loyalty enough to stop you from leaving. You should also check your State Government’s website for available rebates and subsidies.
- Contacting your lender about a better interest rate. Don’t ignore what is typically your biggest expense. Ring or email your bank at least once a year (or more) and ask if they can do better. It helps to refer to more competitive mortgage interest charges you’ve seen on the market. If you don’t get a discount, explore refinancing with a different lender.
Important!
If you’re in strife, you can talk to a financial counsellor for free by contacting the National Debt Helpline (1800 007 007) open from 9.30 am to 4.30 pm, Monday to Friday.
Frequently Asked Questions About Cost Of Living In Australia.
Here's what Aussies, international students, business people and investors want to know about living costs.
What is the cost of living for students in Australia?
Your weekly living costs will depend on whether you live in a major or regional city, live in on-campus accommodation, a homestay family or rental accommodation.
As a rough guide:
- Shared rentals: $150 - $350 per week.
- On-campus accommodation: $130 - $350 per week.
- Private rental (studio apartment) in a capital city: $400-$600 per week.
- Private rental (studio apartment) in a regional city: $200-450 per week.
Apart from rent and tuition fees, your lifestyle can drastically impact your cost of living in Australia. Limit your spending on restaurant meals and takeaway lunches to save money.
Important!
The notorious Australian avocado toast is (allegedly) the #1 driver of all financial ruin in Australia.
How does the cost of living compare across major cities?
Let me confirm what Sydneysiders already know: your city is the most expensive in the country.
Did You Know?
Sydney is also frequently listed in the top ten most expensive cities in the world, among cities like Paris, London, New York, Kyoto, Stockholm, Hong Kong and Singapore.
But Melbourne, Darwin and Brisbane trail closely behind. Hobart and Adelaide are still the cheapest cities to live in.
Final Thoughts On Australia’s Rising Living Costs.
While the cost of living in Australia remains high, there were positive signs of easing prices earlier in 2025. Disposable incomes and savings ratios have also started to improve.
But inflation hasn’t dissipated and the recovery in real income is expected to be slow. Plus, the forecast is for interest rates to remain on hold throughout 2026, with potential hikes if economic conditions worsen.
Until inflation and wages both start moving in the right direction again, many Australians will continue to feel they’re amid a cost-of-living crisis.
Jody
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