What Is Inflation and Why Does It Matter?

Inflation is the rate at which the general level of prices for goods and services increases over time, eroding purchasing power. A moderate level of inflation is considered normal and even healthy for economic growth. However, when inflation outpaces wage growth, everyday items become less affordable, especially for those in the early stages of their careers who typically earn lower incomes.

In Australia, for example, the Consumer Price Index (CPI) rose by over 7% in 2022—the highest rate in decades. Similar patterns were seen in countries like the U.S. and the U.K., where energy costs, food prices, and housing expenses surged. Although inflation has since eased slightly, many of the price increases remain “sticky,” meaning they haven’t returned to pre-pandemic levels.

How the Cost of Living Hits Young People Hardest

Young adults are uniquely vulnerable to inflation for several reasons. Many are renting rather than owning homes, making them more exposed to rapid increases in housing costs. According to CoreLogic, the average rent in Australia increased by over 10% in major cities in 2023 alone. With housing typically making up the largest share of monthly expenses, rent hikes leave little room for savings or discretionary spending.

Transport costs have also risen due to global oil price volatility, and groceries now take up a larger chunk of weekly budgets. In combination, these pressures create a situation where, even if wages rise slightly, real incomes—adjusted for inflation—can actually fall.

This erosion of purchasing power affects more than just day-to-day spending. It delays major life milestones such as buying a home, starting a family, or saving for retirement. For those with student debt, rising interest rates only worsen repayment burdens.

Coping Strategies: Budgeting, Side Hustles, and Staying at Home

To adapt, many young adults are embracing creative solutions. Budgeting apps such as Mint, YNAB, or Australia's Pocketbook are helping people track expenses and prioritise essential spending. Some are moving back in with family to save on rent, while others are taking on second jobs or “side hustles” to supplement their income—driving for Uber, freelancing online, or running small e-commerce ventures.

There’s also been a cultural shift toward frugality and financial literacy. Social media platforms like TikTok and Instagram are filled with influencers sharing money-saving tips, investing advice, and “no-spend challenge” ideas. While not all advice online is sound, the general trend reflects a growing awareness among young people of the need to take control of their finances in uncertain times.

The Bigger Picture: Wages and Policy Responses

Although personal choices matter, structural economic issues also need to be addressed. In many developed economies, wage growth has lagged behind productivity growth for years, meaning workers are doing more but not necessarily earning more. This long-term stagnation in real wages has left young people particularly disadvantaged, especially in sectors such as retail, hospitality, and the arts.

Governments and central banks have responded to inflation through monetary tightening—raising interest rates to curb demand. While this may help slow inflation, it also raises borrowing costs, affecting mortgages, car loans, and even credit card debt. For young adults already struggling to save, higher interest payments reduce financial flexibility even further.

Some economists argue that fiscal policies—such as targeted subsidies for renters or students, investment in affordable housing, and indexation of minimum wages—could help ease the burden without triggering further inflation. However, such measures require political will and careful economic balancing.

Looking Forward: Resilience and Reform

The cost-of-living crisis has underscored the fragility of young people’s economic position, but it has also revealed their adaptability and resourcefulness. While inflation may ease in the coming years, the broader challenges of housing affordability, job insecurity, and wage stagnation will likely persist without systemic change.

For now, young adults are doing what they’ve always done: adjusting, innovating, and pushing for a fairer economic future. But if policymakers fail to address the structural drivers of inequality, today’s inflation pain could turn into tomorrow’s generational divide.