Inflation Expectations Hit 6.9% in Australia: How to Protect Your Purchasing Power in 2026

The Inflation Shock Nobody Expected

In early 2025, inflation was supposed to be coming under control. The RBA had held rates steady, consumer spending was cooling, and the consensus view was that Australia would gently glide back toward the 2-3% target band by mid-2026.

That narrative is now in tatters.

As of late March 2026, ANZ-Roy Morgan inflation expectations have surged to 6.9% for the week of March 16-22, up a staggering 1.6 percentage points in just weeks. Across the first 11 weeks of 2026, expectations averaged 5.7%. Headline CPI sits at 3.8% (January 2026 data), and the RBA has responded with back-to-back rate hikes, pushing the cash rate to 4.10%.

The catalyst? The US-Israeli strikes on Iran at the end of February 2026 sent oil prices soaring, disrupted global supply chains, and injected a new wave of uncertainty into an already fragile economic picture. CBA analysts have warned of a “strong likelihood” of oil reaching US$120-150 per barrel.

For Australian households already stretched by years of rising costs, this is a serious escalation. This article breaks down what’s driving inflation higher, how it’s affecting different parts of your financial life, and the practical steps you can take to protect your purchasing power.

What’s Driving Inflation in 2026

The Iran Conflict and Oil Prices

The single biggest new inflationary force is the conflict in the Middle East. Since the strikes on Iran began on 28 February 2026, oil prices have surged from around US$75 per barrel to over US$90, with CBA forecasting a potential move to US$120-150.

For Australia, this flows directly into:

• Petrol prices: Up 15-25% since late February. Australia Post has already announced fuel surcharge increases, and freight costs are rising across the supply chain.
• Airline fares: Jet fuel is a major cost for airlines. Domestic airfares have begun rising.
• Manufacturing and transport: Every product that moves by truck, ship, or plane costs more to deliver.
• Agricultural inputs: Fertiliser, diesel for farm equipment, and freight costs all increase food prices with a lag.

Domestic Demand Still Running Hot

The RBA’s March statement noted that domestic demand has been “stronger than anticipated” and that the economy is “operating at levels beyond its capacity.” In plain English: Australians are still spending more than the economy can sustainably produce, which pushes prices up.

This is partly driven by:

• Population growth: Australia’s population grew by approximately 550,000 in 2025, largely through immigration. More people means more demand for housing, goods, and services.
• Government spending: Federal and state government spending has increased significantly in recent years, adding to aggregate demand.
• Wealth effect: Despite rate hikes, property prices nationally have continued to rise. Homeowners feeling wealthier tend to spend more.

The Wage-Price Dynamic

Average wages are growing at approximately 3.5-4.0% annually. While this is below headline inflation, it’s fast enough to sustain consumer spending and prevent the sharp demand decline that would bring inflation down quickly. The RBA is watching wage growth closely as a signal of whether inflation expectations are becoming “embedded.”

How Inflation Is Hitting Australian Households

The aggregate CPI number (3.8%) masks significant variation across spending categories. Here’s where the real pain is in March 2026:

For a household earning the median income of approximately $110,000, these increases collectively represent an additional $4,000-7,000 per year in essential costs. That’s money that can’t go toward savings, investments, or discretionary spending.

The Mortgage Double Squeeze

The cruelest aspect of the current environment is the “double squeeze” on mortgage holders. Your monthly expenses are rising due to inflation (groceries, fuel, insurance), and your mortgage repayments are rising due to rate hikes designed to fight that same inflation.

Impact of rate hikes on a $600,000 variable mortgage (30-year term):

If the cash rate reaches 4.35% (as some economists predict), a household with a $600,000 mortgage would be paying almost $500 per month more than they were in January 2026. Over a year, that’s nearly $6,000 in additional mortgage costs alone, on top of the $4,000-7,000 in higher living expenses.

Protecting Your Purchasing Power: Practical Strategies

1. Lock in Higher Returns on Savings

In a rising rate environment, savings accounts and term deposits offer genuinely competitive returns for the first time in over a decade.

Best savings and term deposit rates (March 2026):

At 5.0% or above, your savings are growing faster than the official CPI (3.8%), which means you’re earning a positive real return. This hasn’t been the case for most of the past 15 years.

Strategy: Keep 3-6 months of living expenses in a high-interest savings account for emergencies. Any additional cash you won’t need for 6-12 months should go into a term deposit to lock in current rates.

2. Review and Renegotiate Your Mortgage

With every rate hike, the gap between what loyal customers pay and what new customers are offered widens. Banks are currently offering significant discounts to attract new borrowers, which means your existing rate may be well above what’s available.

Steps to take:

1. Check your current variable rate against comparison sites (Canstar, RateCity, Finder)
2. Call your lender and ask for a rate review. Mention competitor rates. Banks have dedicated retention teams whose job is to reduce your rate to keep you.
3. If your lender won’t match the market, seriously consider refinancing. Switching costs ($500-1,000 in discharge fees) are typically recovered within 2-3 months of a lower rate.
4. If you’re on a variable rate and concerned about further hikes, consider fixing a portion (say 50%) of your loan. As of March 2026, 2-year fixed rates are available from around 5.20%, which provides certainty on half your repayments.

Saving even 0.25% on a $600,000 mortgage equals $1,500 per year. It’s one of the highest-impact financial actions you can take.

3. Build an Inflation-Resistant Investment Portfolio

Not all investments respond equally to inflation. Here’s how major asset classes perform:

Inflation-resistant portfolio adjustments for 2026:

• Increase allocation to companies with pricing power. Consumer staples (Woolworths, Coles), healthcare (CSL, ResMed), and utilities (APA Group) can pass cost increases to customers. They tend to outperform during inflationary periods.
• Consider Australian Government indexed bonds (Treasury Indexed Bonds or TIBs). These pay a real return above CPI, guaranteeing your investment keeps pace with inflation. They’re available through the ASX (via bond ETFs like IAF or AGVT) or directly through the Australian Government.
• Maintain property exposure. If you already own property (investment or home), it’s a natural inflation hedge. Rents are rising 6-10% annually, and property values have historically risen with or above inflation over the long term.
• Add gold exposure. Gold is trading near record highs in AUD terms (around $4,380/oz) for good reason. It’s the oldest inflation hedge in existence. Even a 5-10% allocation can meaningfully reduce portfolio volatility during inflationary periods.

4. Negotiate Your Salary

Wages are growing at 3.5-4.0%, but inflation is running at 3.8% (and expectations are at 6.9%). If your salary isn’t keeping pace, your real income is declining.

Tips for salary negotiation in 2026:

• Know your market rate. Use Seek Salary data, Hays Salary Guide, or Robert Half salary surveys to benchmark your role.
• Frame it around value, not inflation. Employers respond better to “I’ve delivered X results and the market rate for my role is Y” than “inflation is high so I need more money.”
• Consider the total package. If your employer can’t move on base salary, negotiate for salary sacrifice arrangements, additional super contributions (tax-effective), professional development budgets, or flexible work arrangements that save you commuting costs.
• Time it right. Budget season (March-May for many companies) is the best time to have this conversation. Don’t wait until after budgets are set.

5. Audit Your Household Spending

Inflation doesn’t hit every category equally, and you have more control over some categories than others.

High-impact areas to review:

• Insurance: Get comparison quotes every year. Premiums have risen 10-16%, but switching providers can often save more than the increase. Use comparison tools like Compare the Market or iSelect.
• Energy: Switch providers before July 2026 when new default market offers take effect. The AER has flagged potential electricity price reductions from 1 July 2026 as wholesale energy costs ease.
• Subscriptions: The average Australian household spends $100-200/month on subscriptions (streaming, gym, software, apps). Audit ruthlessly. Cancel anything you haven’t used in the past 30 days.
• Groceries: Switch to Aldi for staples (30-40% cheaper than Woolworths/Coles on comparable items). Use Woolworths Everyday Rewards and Flybuys strategically. Buy seasonal produce. Reduce food waste (the average Australian household throws away $2,500 of food per year according to DCCEEW data).
• Fuel: Use apps like Petrol Spy or MotorMouth to find the cheapest fuel in your area. Fill up on the cheapest day of the price cycle (typically Tuesday in most capital cities). Consider whether an electric vehicle makes financial sense given current petrol prices.

6. Maximise Your Super Contributions

Superannuation is one of the most tax-effective ways to build long-term wealth, and it becomes even more valuable during inflationary periods because of the concessional tax treatment.

Key strategies for 2026:

• Salary sacrifice up to the concessional cap ($30,000 in 2025-26, rising to $32,500 from 1 July 2026). Your contributions are taxed at 15% inside super, versus your marginal rate (potentially 32.5-45%) outside super. This is effectively a guaranteed return through tax savings.
• Use the carry-forward provision if you’ve been under the cap in prior years. You can carry forward unused concessional contributions from the previous five financial years, as long as your total super balance was below $500,000 at the prior 30 June.
• Consider the government co-contribution if you earn under $58,445 (2025-26). The government contributes up to $500 for every $1,000 of after-tax (non-concessional) contributions you make. It’s free money.
• Spouse contribution tax offset. If your spouse earns under $40,000, you can contribute up to $3,000 to their super and receive an 18% tax offset ($540).

7. Build an Emergency Buffer

During periods of economic uncertainty, the importance of an emergency fund cannot be overstated. The RBA governor has openly acknowledged the possibility of a recession. If you lose your job or your hours are cut, having cash reserves is the difference between weathering the storm and going into debt.

Target: 3-6 months of essential expenses in a high-interest savings account (earning 5.0%+ as outlined above). This serves dual purposes: it’s your financial safety net, and it’s earning a return above inflation while it sits there.

What the RBA Is Doing and Why It Matters

The RBA’s current strategy is straightforward in theory, painful in practice: raise interest rates until demand slows enough to bring inflation back to the 2-3% target band.

Governor Bullock’s stark warning, “We don’t want to have a recession, but if it’s hard to get inflation down, then we’re going to have to deal with that, possibly”, signals that the RBA is prepared to accept significant economic pain to control prices.

For households, this means:

• More rate hikes are possible. The March decision was a close 5-4 vote, but if inflation data doesn’t improve, expect at least one more hike in 2026.
• Rate cuts are off the table for now. Don’t plan your finances around relief from lower rates. The earliest realistic window for a rate cut is late 2026, and only if inflation falls sharply.
• The economy will slow. Higher rates are designed to reduce spending. Business closures, job losses, and falling consumer confidence are features of this process, not bugs. AMP economist My Bui has noted that another rate hike “would make recession more likely.”

The Bottom Line

The inflation surge of early 2026 is different from the post-pandemic price spike. It’s being driven by a genuine supply shock (the Iran conflict), compounded by still-strong domestic demand and an economy running above capacity. There’s no quick fix, and the RBA’s medicine (higher rates) creates its own pain for households.

But you’re not powerless. Locking in high savings rates, renegotiating your mortgage, building an inflation-resistant portfolio, and auditing your spending can collectively save thousands of dollars per year. And maximising your super contributions takes advantage of the best tax concessions available to ordinary Australians.

The households that will come through this period strongest are the ones that take deliberate, informed action now, rather than hoping things will sort themselves out.

Want personalised advice on protecting your wealth during this inflationary period? A financial adviser can help you build a strategy tailored to your situation. Find a verified financial adviser on WealthWorks →