---
title: "Inflation Bounced Back. Unemployment Dropped. So Why Does Everyone Feel Broke?"
description: "Australia's CPI hit 3.8%, unemployment fell to 3.9%, but household spending power is cratering. Data-driven analysis of what the disconnect means for property investors."
author: Joey Don
date: 2025-07-10
category: Market Analysis
url: https://premiumrea.com.au/blog/australia-economy-inflation-rebound-property-impact
tags: ["inflation", "unemployment", "RBA", "interest rates", "economy", "property market", "cost of living"]
---

# Inflation Bounced Back. Unemployment Dropped. So Why Does Everyone Feel Broke?

*By Joey Don, Co-Founder & CEO at PremiumRea — 2025-07-10*

> The economic data says Australia is booming. Your bank account says otherwise. I pulled apart the numbers to find out which one is lying — and what it means for property.

Inflation bounced back. Unemployment dropped. On paper, the Australian economy looks like a machine running at full capacity.

But I sat with three different clients last week — all household incomes above $150,000 — and every single one used the same word: struggling.

The disconnect between the headline economic data and the lived experience of ordinary Australians has never been wider. And if you're trying to make property investment decisions based on newspaper headlines, you're going to get it badly wrong.

Let me pull apart what's actually happening.

## The inflation U-turn nobody saw coming

Australia's headline CPI hit 3.8% in December 2023, up from 3.4% in November. The RBA's preferred measure — the trimmed mean, which strips out volatile items — climbed to 3.3%, above the central bank's own forecasts [1].

This wasn't supposed to happen. The consensus view in mid-2023 was that inflation had peaked and was gliding back toward the 2-3% target band. Rate cuts were being priced in for early 2024.

Instead, inflation pulled a U-turn. And the breakdown by category tells you exactly why your grocery bill makes you want to cry.

**Housing costs: +5.5%.** This is the big one. Rents are climbing at more than double the headline CPI rate, driven by the structural supply shortage I've written about before — 70,000 fewer dwellings built per year than needed. Building material costs remain elevated despite easing from their 2022 peak. Labour shortages in construction are chronic [2].

**Food: +4.8%.** Supply chain disruptions, higher energy costs for processing and transport, and weather events affecting agricultural output. The average household grocery bill has increased by approximately $3,500 per year since 2021.

**Utilities: the subsidy cliff.** Here's a sneaky one. Multiple state governments offered energy subsidies in 2023 — typically $250-$500 per household — which temporarily suppressed the utilities component of CPI. As those subsidies expired in late 2023, electricity prices snapped back to market rates, adding roughly 0.5 percentage points to headline inflation in a single quarter [3].

The energy subsidy effect is particularly insidious because it created a false sense of improvement. Households felt their power bills drop, assumed the crisis was easing, and then got blindsided when the real price reasserted itself.

## Unemployment is low — but the quality of employment is terrible

The unemployment rate sits at 3.9%. That's historically low. The RBA considers anything below 4.5% to be full employment.

So why does nobody feel employed in a meaningful sense?

Because the unemployment rate doesn't capture underemployment. It doesn't capture the shift from full-time to part-time work. It doesn't capture the gig economy workers who technically have a job but can't get enough hours to pay their mortgage.

The underemployment rate — people who have work but want more hours — sits at 6.5%. Combined with unemployment, the underutilisation rate is 10.4%. That means one in ten Australian workers is either jobless or not getting enough work [4].

And the jobs that are being created are disproportionately part-time, casual, and in lower-paying sectors like hospitality and retail. Full-time employment growth has been anaemic. The headline number looks good. The composition of that number is awful.

For property investors, this matters because mortgage serviceability depends on stable income. A borrower with a $600,000 mortgage needs approximately $3,200 per month in repayments at current rates. If their hours get cut from 38 to 30 per week — technically still employed, but with a 20% income reduction — they're in trouble. And the banks' serviceability buffers (currently 3% above the loan rate) were calibrated for full-time permanent employment, not the casualised workforce reality.

> "I tell clients: the unemployment rate is a lagging indicator that tells you where the economy was six months ago," says Yan Zhu, our co-founder. "The underutilisation rate tells you where it is right now. And right now, it's fragile."

## The two-speed property market

Here's what the macro data translates to on the ground.

Property above $1.5 million is slowing. Days on market are increasing. Auction clearance rates in premium suburbs have dropped from 72% in early 2023 to around 58% in late 2023. These are the properties held by high-income households who are most exposed to rate increases — their mortgages are larger, their repayments have increased more in absolute terms, and the interest rate sensitivity is much higher [5].

Property below $800,000 — the affordable end — is actually accelerating. In Melbourne's southeast, median house prices in suburbs like Cranbourne, Hampton Park, and Narre Warren rose 6-9% in 2023 despite the rate environment. Rental yields in these areas have pushed above 4% for standard tenancies and above 6% for converted or multi-tenancy properties.

Why the divergence? Because the affordable segment is driven by demand fundamentals — population growth, rental scarcity, and necessity. People need to live somewhere. They need to rent. At the sub-$800K price point, mortgage repayments on an 80% LVR are approximately $2,800 per month at 6.5% interest. That's manageable for a dual-income household on $130,000 combined. The maths works [6].

At $1.5 million with the same LVR and rate, repayments hit $5,250 per month. That requires a household income above $180,000 to stay within the standard 30% of gross income serviceability threshold. The pool of buyers at that level is much smaller, and much more rate-sensitive.

This is why we focus exclusively on the sub-$900K bracket in Melbourne's growth corridors. Not because we can't buy expensive properties. Because the demand dynamics at the affordable end are structurally stronger, less rate-sensitive, and produce better risk-adjusted returns.

## What the RBA will actually do (and why it doesn't matter much)

Every property investor I meet wants to know when rates will come down. My honest answer: I don't know, and more importantly, it doesn't matter as much as you think.

The RBA has held the cash rate at 4.35% since November 2023. Market pricing suggests cuts beginning in late 2024, but the inflation rebound has pushed expectations back. As of early 2024, the first cut is not priced until Q3 or Q4 [7].

But here's what the historical data actually shows: over the past 40 years, Australian property prices have had almost zero correlation with interest rate movements. Prices rose during the 1988 rate hikes. Prices rose during the 2000-2008 rate hiking cycle. Prices rose during the 2009-2010 tightening. Prices rose during 2022-2023 despite the fastest rate hiking cycle in a generation.

Why? Because interest rates are a symptom, not a cause. The RBA raises rates because the economy is running hot — which means employment is strong, wages are rising, and people can afford to borrow. The same conditions that produce rate hikes also produce property demand.

The exception is the premium end of the market, where marginal buyers are rate-sensitive. But in the sub-$800K segment where we operate, rate changes of 0.25% move monthly repayments by about $30. That's not enough to change anyone's purchasing decision [8].

So stop waiting for rate cuts. The property market has already told you it doesn't care. Melbourne's affordable segment grew through the entire tightening cycle. The land scarcity equation hasn't changed. The population growth hasn't slowed. The rental vacancy rate is still at historic lows.

The data says buy. The headlines say panic. I know which one I'm following.

## References

1. [Australian Bureau of Statistics, Consumer Price Index December 2023. Headline CPI 3.8%, trimmed mean 3.3%.](https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia)
2. [ABS Building Activity survey, September 2023. Construction cost index and labour availability data.](https://www.abs.gov.au/statistics/industry/building-and-construction/building-activity-australia)
3. [Federal Budget 2023-24, Energy Bill Relief Fund. State-by-state household energy subsidies and expiry dates.](https://budget.gov.au/)
4. [ABS Labour Force Survey, December 2023. Unemployment 3.9%, underemployment 6.5%, underutilisation 10.4%.](https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia)
5. [REIV Auction Market Update, Q4 2023. Melbourne clearance rates by price segment.](https://reiv.com.au/property-data/auction-results)
6. [PremiumRea market analysis: sub-$800K Melbourne southeast house prices +6-9% in 2023. Rental yields 4%+ standard, 6%+ multi-tenancy.](#)
7. [Reserve Bank of Australia, Cash Rate Target history. 4.35% from November 2023. Market pricing via ASX rate tracker.](https://www.rba.gov.au/statistics/cash-rate/)
8. [RBA Statistical Table F5, Housing Price Indices. 40-year comparison of cash rate vs capital city house prices.](https://www.rba.gov.au/statistics/tables/)

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Source: https://premiumrea.com.au/blog/australia-economy-inflation-rebound-property-impact
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent