20 September, 2022

Inflation, interest rates and your super

You’ve seen the headlines about inflation and interest rates, but do you know how it affects your super? Let’s look at what’s been happening in markets this financial quarter. 

Key points for July-September 2022  

  • High demand pushing up inflation
  • Interest rates increase to battle inflation rise
  • Aussie shares up 1.17%, global shares down 2.98%
  • Aussie bonds down 1.17%, global bonds down 2.61%

    Inflation kept rising …  

    Inflation across the globe has continued to rise.  

    Recent data put the rate at 8.5% in the US, 10.1% in the UK and 6.1% in Australia — the highest across all three regions in decades.  

    This means the cost of food, power, fuel and other everyday items has continued increasing, putting more pressure on household budgets.  

    Recently, short-term inflation has been caused by disruptions to supply chains.  

    For example, the conflict in Ukraine has led to a food and energy shortage, which has increased demand. Pandemic restrictions and lockdowns also slowed the production of goods such as cars and electronics. 

    And, as we all know, if demand increases, so does the price. 

    That’s why you’re paying over $2 a litre for petrol and spending less on entertainment, clothes or travel (fun things). 

    ... Pushing up interest rates …  

    To battle inflation and the rising cost of living, central banks worldwide have moved quickly to raise official interest rates. No doubt you’ve noticed your mortgage repayments increasing too.  

    In August, the US Federal Reserve hiked interest rates by 0.75% and the Bank of England increased rates by 0.50%.  

    The Reserve Bank of Australia increased interest rates by 0.50% in early August and then again by the same amount in early September.  

    By making you pay more for your mortgage, central banks hope to curb spending and decrease demand for goods and services. Less consumer spending means businesses need to lower prices, which slows inflation.  

    Despite this, consumer spending has not slowed as quickly as expected. This is likely because of record-high household savings during the pandemic and a desire to start enjoying things like entertainment and travel once again.  

    But one thing is for sure: if inflation remains high, interest rates are likely to keep rising too.  

    ... Which impacts market prices  

    Rising inflation and interest rates don’t just impact the cost of goods and your mortgage. They also affect the value of our investments.  

    Long-term bond yields, which reflect the expected future path of interest rates, have risen substantially (see below).  


    Australian and US 10-year government bond yields (1 July 2022 to present)


    graph showing the rise of long-term bond yields, 


    However, higher interest rates tend to negatively affect the economy, which means bonds and share markets have generally decreased in price.  

    Across the month, global share markets fell by 2.98%1, while global bond markets fell by 2.61%. In Australia, bond markets dropped by 1.17%. Though we did see a slight gain in shares of 1.17%2. This is likely because Australia is one of the world’s largest exporters of commodities, such as iron ore and coal, which are currently in high demand. 

    For example, the price of thermal coal was $425 USD per tonne at the end of August compared with $157.5 USD at the start of the year3.  

    This explains why the Australian share market index is only down 3.94% across the calendar year to date. In contrast, the global share market index is down 15.58%.  

    1 MSCI All Countries World Index Total Return (hedged in AUD).  
    2 S&P/ASX 300 Total Return Index.  
    3 Bloomberg Global Aggregate Composite Index (hedged in AUD).

    Our performance  

    While our investments face short-term headwinds, we continue to perform well against our medium to long-term performance goals. 

    This is because we invest your money across many markets and asset types to buffer ourselves from short-term fluctuations (often called diversification). 

    So, if bonds and shares are down, our investments in property, infrastructure and other long-term assets help keep us balanced. This ensures we keep your super growing over the long term, despite short-term challenges. 

    The table below shows net investment returns across our pre-mixed options over 3-, 5- and 7-year horizons. 

    Option 3 Years  5 years 7 Years 
     Conservative  2.34%  3.67%  4.09%
     Moderate  3.44%  4.94%  N/A
     Balanced  4.74%  6.20%  6.90%
     Sustainable  4.37%  6.23%  N/A
     Growth  6.03%  7.53%  8.10%

    Note: The Moderate and Sustainable options have an inception date with the Spirit Super trustee of 1 April 2021. The returns reported above combine data since Tasplan’s inception of these options in December 2015.  

    Past performance is not a reliable indicator of future performance.  

    For daily crediting rates across all our pre-mixed and single-sector investment options for both accumulation and pension members, please see our Investment options.  

    Need advice about your investment options?  

    Being in the right investment option at the right time can significantly impact your overall super balance. Talk to a super expert to learn more about your investment options or help choose the option that’s right for you. We’re here to help.  

    Call 1800 005 166