The economy is sending two signals that seem to contradict each other. Households are spending more cautiously, pulling back, trading down, and absorbing higher bills rather than reaching for anything discretionary. At the same time, prices haven’t behaved the way that pullback is supposed to make them behave. They’ve kept rising. The instinctive conclusion, and the one most commentary reaches for, is that stretched consumers plus persistent inflation must mean trouble ahead for property, and a reason to wait for things to fall, or for rates to drop, before doing anything.
That reading is understandable. It’s also, on the evidence, the wrong lesson to draw. The more useful question isn’t whether the economy feels uncomfortable, which it plainly does, but what a squeeze like this actually does to the value of what you hold, including the cash you’re holding while you wait.
The core isn’t cooling as much as the headline suggests
Start with the numbers, because they’re less reassuring than the summaries. Headline inflation eased to 4.0 per cent in the year to May, down from 4.2 per cent the month before, and that’s the figure most people notice. Underneath it, the trimmed mean, which is the measure the Reserve Bank actually watches because it strips out the volatile one-offs, didn’t ease at all. It rose, to 3.6 per cent, and sits stubbornly above the 2 to 3 per cent band the Bank is trying to return to. Headline inflation is drifting down. Underlying inflation is proving sticky. Those are not the same story, and the gap between them matters.
It matters even more when you look at what’s driving it. Housing is the single largest contributor to inflation, running at 6.5 per cent over the year. That figure is built from electricity up more than twenty per cent as government rebates rolled off, alongside rising rents and the rising cost of building new dwellings. In other words, the thing making life more expensive isn’t some abstract basket of goods. It’s the cost of keeping a roof overhead.
It’s worth being precise about what “housing” means here, because it’s easily misread. Most people hear “the Reserve Bank” and “housing” in the same sentence and think immediately of interest rates and mortgage repayments, and they reasonably assume that when the Bank lifts rates to fight inflation, it makes housing more expensive and feeds the very problem it’s trying to solve. That loop feels intuitive, but it doesn’t work the way it appears, because mortgage interest isn’t in the inflation figure at all. The ABS removed it in 1998. Neither are existing house prices, nor land. What the CPI’s “housing” actually measures is the cost of occupying a home: rents, utilities such as electricity, and the cost of building a new dwelling, meaning the construction rather than the land beneath it. So the housing that’s driving inflation isn’t the asset-price market we usually have in mind when we say property is expensive. It’s the cost of shelter itself. That distinction matters, because it changes what follows.
Housing isn’t the victim of inflation. It’s the source of it.
This is where the conventional framing quietly falls apart. If shelter is the biggest single force pushing the cost of living higher, then “inflation is high, so housing must be about to fall” is an assumption doing a lot of unexamined work. The two ideas sit awkwardly together.
There’s a second-order effect worth sitting with, too. Persistent inflation doesn’t just raise prices at the checkout; it raises the cost and slows the pace of building the homes the country is short of. Materials, labour, energy and finance all cost more, and every increase makes marginal projects less viable and pushes completion dates further out. The result is that the same inflation everyone wants to see fall is actively making the underlying shortage harder to resolve, not easier. High building costs don’t clear a shortage. They entrench it.
What sticky inflation does to the value of money
Here is the part almost no one frames properly, because it isn’t dramatic and it doesn’t make a headline. When underlying inflation settles at something like 3.6 per cent and stays there, money that sits still loses purchasing power quietly, continuously, and without anyone having to make a bad decision. A sum held in cash for what feels like a sensible pause doesn’t stay the same size in real terms. It shrinks. Not visibly, because the number in the account is unchanged, but in what that number can actually buy, which is the only measure that counts.
Different assets respond to that environment differently, and understanding the difference is the whole point. Cash and fixed savings are the most exposed, because their value is fixed in nominal terms precisely while the value of a dollar is falling. Well-located, income-producing real assets tend to behave differently. Their prices and, importantly, their rents tend to move with inflation rather than against it, which is why rental income and hard-asset values have historically held real value through inflationary periods better than money left on the sidelines. Borrowing sits in a category of its own, because inflation slowly erodes the real burden of a fixed debt over time, quietly working in favour of the borrower rather than against them.
None of that is a case for rushing into anything, and it isn’t advice to move money from one place to another. Every individual’s position is different, and this is analysis, not a recommendation. The point is narrower and more important than a prompt to act. It’s that “waiting in cash until things feel certain” is not the neutral, risk-free position it’s usually assumed to be. In an environment like this one, waiting has a cost, that cost compounds, and it’s being paid whether or not anyone notices.
The rescue may not arrive on schedule
Much of the current hesitation rests on a single expectation: that rate relief is coming, and that it makes sense to wait for it before doing anything. But underlying inflation stuck above target constrains the Reserve Bank in both directions. It can’t deliver the deep, rapid cuts many people are quietly counting on without risking a fresh flare in the very prices it’s trying to contain. The most common plan in the market right now, which is to wait for rates to fall and then act, may be waiting on a rescue that arrives later and smaller than assumed, if it arrives on the expected terms at all.
The better question
So the question worth asking isn’t the one the headlines invite. It isn’t “is now a good time to buy?”, because that question assumes the only thing at stake is the price of an asset you might purchase. The sharper question is this: what is happening to the value of what I already hold, including my cash, while I wait for a clearer picture?
A squeezed economy with sticky inflation feels like a reason to stand still. Looked at closely, it’s an environment that quietly penalises standing still, not through a dramatic loss, but through the slow erosion of purchasing power that never announces itself. Understanding that is worth more than any forecast. The economy isn’t giving anyone certainty. It is, however, telling you something clear about the cost of waiting for it.
Your Next Step
Markets rarely become more certain. They simply present a different set of opportunities and risks over time.
If this article has prompted you to think differently about inflation, cash, or the cost of waiting, perhaps it’s time for a Check Navigate.
At Investor Property, we believe successful investing isn’t about reacting to headlines or trying to perfectly time the market. It’s about regularly reviewing your strategy to ensure it still reflects your goals, your circumstances and the environment around you.
Whether you’re building your portfolio, managing existing assets or simply weighing up your options, taking the time to revisit your Journey to Freedom can often be more valuable than trying to predict what comes next.
