Rising inflation

26 May 2022

There’s no doubting that our money isn’t buying as much as it used to. The reason for this difference in prices over time is inflation, and it’s been rising quickly in recent times.

Because inflation erodes the buying power of your savings, it’s important to understand what it is and the steps you can take to protect your standard of living in retirement.


What is it?

Policy makers have a few different ways of measuring inflation but they all focus on the change in prices of everyday products and services bought by consumers. Think of it as the change in the cost of living.


How inflation is measured

The best-known indicator of inflation is the Consumer Price Index (CPI). This is calculated by the Australian Bureau of Statistics (ABS) every 3 months. It measures the percentage change in the price of a basket of commonly used products and services including things like clothing, food, alcohol, transport and health services. According to the ABS, Australia’s average annual inflation rate over the past 25 years has been 2.4% per year. The rate of inflation is now rising and is currently sitting at 5.1%[1], which is the highest rate we have seen in the last 20 years.


Consumer price index (CPI) changes 1997 – 2022
CPI line graph 1997-2022

Source: ABS, 31 March 1997 to 31 March 2022


Why inflation is rising

There are a number of factors driving up prices in Australia and across the world. The Russian invasion of Ukraine is driving up the price of food and energy, which can be seen in the higher cost of wheat and fuel prices. The COVID-19 pandemic has also contributed to inflation – the shortage of workers in many industries like hospitality, health and construction has led to rising labour costs. The pandemic also led to disruptions in supply chains, for example the shortage of new cars – driving up prices of both new and used vehicles. And the surge in consumer spending during and post lockdowns has also added to increased prices.


What rising inflation means for your super

Inflation reduces the value of your money. For example, if you put $1 under your mattress today and inflation goes up by 2.5% each year, in 10 years’ time the buying power would be reduced by 28%.

Although we can’t be certain about what the cost of goods and services will be in future years, it can be assumed that the cost of living will continue to rise. Even small annual increases in the price of goods and services can add up over time. If we assume an average annual inflation rate of 2.5% - that coffee that is costing you $4.60 today could cost $9.65 in 30 years.


Price rises 2022 - 2052
30 years from now you may need more than double the money to buy what you can today. Dollar amounts comparing 2022 and 2052.

The above examples assume an annual price inflation rate of 2.5% each year.

While you’re working, your wages go up as the cost of living rises which helps provide some protection against the impacts of inflation. But what about your super? It’s essential to protect the purchasing power of your super so that when you retire, your savings keeps up with the rising cost of goods and services.


What you can do to protect your super

There are 2 key things that can potentially protect your super from the impacts of inflation – investing your money in growth assets and diversifying your investments.

The AustralianSuper PreMixed options invest in a diversified mix of assets designed to achieve a return above inflation over the long term. For example, our Balanced (MySuper) option aims to achieve a return that exceeds CPI by at least 4% per annum over the medium to long term, after tax and investment fees.

To achieve these objectives, we invest in growth assets like listed shares and private equity that have the potential to outperform inflation over the long term. Among listed shares, sectors such as consumer staples and energy have historically provided favourable performance in inflationary environments. PreMixed options also invest in unlisted assets that are linked to CPI growth like toll roads and airports, which can also benefit from higher inflation. Investing in assets that have the potential to return more than inflation will help your savings keep up with the rising cost of living.

Read more: Benefits of investing in retirement


Here are some of our other investment options and their CPI objectives. The outperformance objective above inflation is designed to achieve a return that enables members to improve the value of their super savings.


Investment options and objectives
Investment option CPI objective
High Growth CPI + 4.5% over the medium to longer term
Balanced CPI + 4% over the medium to longer term
Socially Aware CPI + 4% over the medium to longer term
Indexed Diversified CPI + 3% over the medium to longer term
Conservative Balanced CPI + 2.5% over the medium term
Stable CPI + 1.5% over the medium term

In the table below, you can see how a number of our investment options are performing against their long-term CPI objectives. For example, over the 20 years ending on 31 March 2022, the Balanced option has outperformed its CPI + 4% objective by 1.56% per annum. That means investments in the Balanced option grew by an average of 5.6% more than inflation every year, enabling members to improve their financial position in retirement.


Investment option performance compared to CPI benchmark as at 31 March 2022
1 Year 5 years pa 10 years pa 20 years pa
High Growth 10.20% 10.07% 10.93% 8.12%
CPI objective^ 9.59% 6.82% 6.84% 7.30%
Balanced 9.05% 9.11% 9.84% 8.03%
CPI objective^ 9.09% 6.32% 6.18% 6.47%
Socially Aware 8.73% 7.64% 9.18% 7.03%
CPI objective^ 9.09% 6.32% 6.18% 6.47%
Indexed Diversified 7.37% 7.81% 7.91%
CPI objective^ 8.09% 5.44% 5.65%
Conservative Balanced 5.85% 6.90% 7.97%
CPI objective^ 7.59% 4.82% 4.85%
Stable 3.15% 5.02% 6.11% 6.04%
CPI objective^ 6.59% 3.82% 3.86% 4.81%
Consumer Price Index* 5.09% 2.32% 2.18% 2.47%

* AustralianSuper returns are based on crediting rates. For super (accumulation) products, crediting rates are the investment return less investment fees, the percentage-based administration fee that is deducted from returns and taxes (applicable from 1 April 2020) and taxes. The CPI benchmarks are calculated as an annual rate (annualised for periods of more than 1 year) plus the amount above CPI specified in the investment objective for the option. Investment returns aren’t guaranteed. Past performance isn’t a reliable indicator of future returns. Returns from equivalent options of the ARF and STA super funds are used for periods before 1 July 2006.

^ CPI objective:
High Growth: CPI + 4.5% pa, prior to 1 July 2015 CPI + 5% pa
Balanced: CPI + 4% pa
Socially Aware: CPI + 4% pa
Indexed Diversified: CPI + 3% pa, prior to 1 July 2018 CPI + 3.5% pa, prior to 1 July 2015 CPI + 4% pa
Conservative Balanced: CPI + 2.5% pa, prior to 1 July 2015 CPI + 3% pa, prior to 1 July 2012 CPI + 3.5% pa
Stable: CPI + 1.5% pa, prior to 1 July 2015 CPI + 2% pa, prior to 1 July 2012 CPI + 3% pa


Making the right decisions now can pay off in retirement

According to the Australian Bureau of Statistics, life expectancy^ in Australia has grown by more than 30 years in the last century. Living longer means retirement funds have to last longer. And while the Age Pension provides a safety net in case money runs out, pension payments may not be enough to maintain a good quality retirement.

If you’re unsure about having enough money in retirement, it may be beneficial to speak to an Adviser. They can help you make the right investment choices now so that you can enjoy your best possible retirement.


Explore advice options


1. Australian Bureau of Statistics, Consumer Price Index
2. Australian Bureau of Statistics, Life tables

Investment returns aren’t guaranteed. Past performance isn’t a reliable indicator of future returns.

This may include general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision consider if the information is right for you and read the relevant Product Disclosure Statement, available at australiansuper.com/pds or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD.

AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. 

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