--- title: Understanding Inflation (and Rates of Change) description: Learn how understanding different rates of change, like inflation and wage growth, can help you build wealth and make smarter financial decisions. image: https://downloads.intercomcdn.com/i/o/uika4jyq/1551365581/661201f2ce538d4983f765344243/image.png?expires=1772580600&signature=58e4a2ff045b4f8190a4700bf424dba39cb32aa4599597ecc79aca5c38f449ed&req=dSUiF8p4mIRXWPMW1HO4zURNpjiQukhaqvcwKNWKZcCuWIOQnDeIZsTckAHW%0AYxo4afvKd3pT3HOOApw%3D%0A --- [Skip to content](https://blog.canwi.com.au/understanding-inflation-and-rates-of-change#main-content) [Canwi](https://canwi.com.au) [Blog](https://blog.canwi.com.au) [About](https://canwi.com.au/about) [Pricing](https://canwi.com.au/pricing) [Explore Scenarios](https://canwi.com.au/scenarios) [Sign In](https://app.canwi.com.au/?action=signin) [Get Started](https://app.canwi.com.au/?action=signup) [Home](https://canwi.com.au) [Blog](https://blog.canwi.com.au) [About](https://canwi.com.au/about) [Pricing](https://canwi.com.au/pricing) [Explore Scenarios](https://canwi.com.au/scenarios) [Sign In](https://app.canwi.com.au/?action=signin) [Get Started](https://app.canwi.com.au/?action=signup) ![Understanding Inflation (and Rates of Change)](https://downloads.intercomcdn.com/i/o/uika4jyq/1551365581/661201f2ce538d4983f765344243/image.png?expires=1772580600&signature=58e4a2ff045b4f8190a4700bf424dba39cb32aa4599597ecc79aca5c38f449ed&req=dSUiF8p4mIRXWPMW1HO4zURNpjiQukhaqvcwKNWKZcCuWIOQnDeIZsTckAHW%0AYxo4afvKd3pT3HOOApw%3D%0A) # Understanding Inflation (and Rates of Change) [Cameron](https://blog.canwi.com.au/author/cameron) Mar 4, 2026, 10:35:32 AM # Everything in finance is about different rates of change Not budgeting hacks. Not timing the market. Not cutting coffee. The difference between building wealth and quietly losing it comes down to understanding one thing: what grows faster than what.   Cameron Drury  ·  Co-Founder, Canwi   A millionaire founder I once spoke to - who made his fortune selling mobile phones before most of us even knew what "4G" meant - shared a line with me that I've never forgotten. *"Compounding is a miracle when working for you. But deadly against you."* Then he followed it with something even more precise: "Everything in finance is about different rates of change." That's it. The whole game. Not a spreadsheet formula, not an investment strategy - just an idea. Because different things in your life grow at very different rates, and where you position your money relative to those rates determines almost everything about your financial future. Groceries grow at the rate of consumer inflation. Wages grow at the rate of wage inflation. Property grows at the rate of housing price growth. And those rates are not the same. That difference is where wealth is either built - or quietly eroded.   ---   ## What is inflation, really? Inflation simply means your money loses purchasing power over time. A dollar today buys more than a dollar next year. If inflation is running at 3%, something that costs $100 today will cost $103 in twelve months. The product hasn't changed. The value of the money has. The Reserve Bank of Australia targets inflation between 2–3% per year - the idea being that modest inflation supports stable economic growth. But when it runs hotter than that, as it did when CPI peaked at 7.8% in December 2022, the erosion becomes very noticeable, very quickly. Here's the part most people miss: inflation doesn't erode in a straight line. It compounds. And that distinction matters enormously. A simple example - 3% inflation on a $10 grocery basket | Year | Cost | Increase that year | | --- | --- | --- | | 2025 | $10.00 | - | | 2026 | $10.30 | +$0.30 | | 2027 | $10.61 | +$0.31 | | 2028 | $10.93 | +$0.32 | | 2029 | $11.26 | +$0.33 | Notice the dollar increase gets slightly larger each year. That's compounding. Inflation isn't linear - it builds on itself. And if your money is sitting idle, it's compounding against you.   ---   ## Inflation isn't one thing - it's many Here's where most people get confused. There isn't just "inflation." There are multiple rates of change happening simultaneously, and they diverge in ways that matter enormously over time. 1. Consumer prices (CPI) CPI measures the cost of everyday goods and services - groceries, rent, transport, a pint at the pub. The Australian government targets 2-3% per year, which is why assuming 2.5% for general living costs is a reasonable planning assumption over the long run.  ![](https://downloads.intercomcdn.com/i/o/uika4jyq/1551365581/661201f2ce538d4983f765344243/image.png?expires=1772580600&signature=58e4a2ff045b4f8190a4700bf424dba39cb32aa4599597ecc79aca5c38f449ed&req=dSUiF8p4mIRXWPMW1HO4zURNpjiQukhaqvcwKNWKZcCuWIOQnDeIZsTckAHW%0AYxo4afvKd3pT3HOOApw%3D%0A)  2. Wages (WPI) Wage inflation measures how much pay for the same job increases over time - not because of promotions, but because of economy-wide wage growth. Treasury's 2023 Intergenerational Report sets the long-term wage growth target at 3.7% per annum, which is the default Canwi uses in its model. But here's the catch: when CPI and WPI diverge, real wages - what your pay actually buys - can go backwards even as the number on your payslip goes up. In 2022-23, CPI ran at 5.1% and then 7% while wages grew at just 2.4% and 3.7%. People were earning more dollars. Those dollars bought less. In real terms, the purchasing power of a $100,000 salary was set back to roughly 2010's equivalent. 3. Property Property prices have historically grown much faster than CPI. In 1970, the median Sydney house cost around 4.5 times the average annual income. By 2020, that figure was closer to 12.2 times. That's not just inflation - it's a structurally higher rate of change. Over long periods, residential property in Australia has often grown at 6–10% per year, and in specific cycles considerably more. 4. Debt And nowhere does compounding become more dangerous than with high-interest debt. Consider a $50,000 credit card balance at 18% interest. At that rate, money roughly doubles every four years. That $50,000 becomes $100,000. Then $200,000. Then $400,000 - not because you spent more, but because the rate of change was working against you, relentlessly, in the background. This is the same compounding effect that builds wealth in assets. Applied to liabilities at high interest rates, it does the opposite. That said, debt isn't inherently bad. The rate attached to it - and what you do with it - is what matters. Borrowing at 6% to invest in something growing at 10% means the rate of change works in your favour. That's leverage, and used wisely it accelerates wealth creation. Used poorly, it accelerates its destruction.   ---   ## Positioning yourself on the right side Most people think wealth is about spending less than you earn, saving harder, or cutting back on things that make life enjoyable. Those things aren't wrong. But they're not really where the game is won or lost. Real wealth is built by positioning your money where the rate of change works for you instead of against you. Here's roughly how those rates stack up over the long run: | Asset or liability | Approximate long-run rate | Working for or against you? | | --- | --- | --- | | Cash / savings account | 0–4% | Barely keeping up | | Inflation (CPI) | 2–3% | Against you | | Wages (WPI) | ~3.7% (long-run target) | Neutral (depends on CPI) | | Australian shares | 7–10% long term | For you | | Property | 6–10% (+ leverage potential) | For you | | High-interest consumer debt | 15–22% | Strongly against you | Compounding at 8% builds wealth. Compounding at 3% just preserves purchasing power. Compounding at 0% slowly destroys it. And compounding at 18% - on the wrong side of the ledger - is financially devastating over time. The decisions that determine which of those rates you're exposed to - and on which side - are the decisions that matter most. Not the ones you agonise over most often.   ---   ## Why this is so hard to see in real time None of this is obvious day-to-day. You don't feel inflation compound. You don't notice your real wage going backwards in a single month. You don't see the opportunity cost of cash sitting in a transaction account accumulating in a single statement. That's what makes it so insidious - and why modelling it properly matters.   Once you understand that everything in finance is just competing rates of change, you stop thinking in dollars and start thinking in growth rates. And that shift - more than any individual decision - changes the long-term outcome. - Cameron   **General information only.** This article is intended for educational purposes and reflects the author's personal views. It does not constitute financial product advice. Historical rates of return are not a reliable indicator of future performance. Always consult a licensed financial adviser before making investment decisions.   [Foundations](https://blog.canwi.com.au/tag/foundations) ![Cameron](https://app.hubspot.com/settings/avatar/f6b22a6930cbd1a398fc84b5f6884186) Written by ## Cameron Cameron Drury is a cofounder of Canwi. Early in his career, while working on financial advice transformation projects as a tech consultant, he followed well-meaning advice that made sense at the time but didn’t evolve as his life changed. A few years later, comparing his financial position with a colleague who had planned early became a clear wake-up call. After also working in product at a fintech—where he learned just how complex and inaccessible financial planning can be - Cameron set out to build something better. He believes that with the right tools and clarity, anyone can take control of their finances and end up dramatically better off over time. Outside of work, you’ll usually find him on a tennis court, trying new beers, or keeping up with the latest in Formula 1. [mailto:cameron@canwi.com.au](mailto:cameron@canwi.com.au) ## Related Posts [![](https://blog.canwi.com.au/hs-fs/hubfs/pexels-anastasia-shuraeva-8796064.jpg?width=352&name=pexels-anastasia-shuraeva-8796064.jpg)](https://blog.canwi.com.au/super-contribution-caps-explained) ### [Super Contribution Caps Explained](https://blog.canwi.com.au/super-contribution-caps-explained) Superannuation caps set the rules for how much you can contribute each year without facing extra tax. Understanding... [![](https://blog.canwi.com.au/hs-fs/hubfs/pexels-kampus-8170253.jpg?width=352&name=pexels-kampus-8170253.jpg)](https://blog.canwi.com.au/retirement-isnt-one-chapter.-its-four) ### [Retirement Isn't One Chapter. It's Four.](https://blog.canwi.com.au/retirement-isnt-one-chapter.-its-four) Retirement isn't one chapter. It's four. Most people spend decades planning to reach retirement. Far fewer plan for... [![](https://blog.canwi.com.au/hs-fs/hubfs/pexels-towfiqu-barbhuiya-3440682-9755376.jpg?width=352&name=pexels-towfiqu-barbhuiya-3440682-9755376.jpg)](https://blog.canwi.com.au/carry-forward-rule) ### [The Carry-Forward Rule: Your Superannuation Secret Weapon](https://blog.canwi.com.au/carry-forward-rule) If you've ever had a year where you contributed less than your super cap, you may be sitting on thousands of dollars of... [Canwi](https://canwi.com.au) Financial planning made simple, empowering, and accessible for everyone. ### Navigation - [Home](https://canwi.com.au) - [About Us](https://canwi.com.au/about) - [Explore Scenarios](https://canwi.com.au/scenarios) - [Pricing](https://canwi.com.au/pricing) ### Planner - [How It Works](https://canwi.com.au/planner/how-it-works) ### Legal - [Privacy Policy](https://help.canwi.com.au/en/articles/10434964-privacy-policy) - [Terms of Use](https://help.canwi.com.au/en/articles/10434925-terms) ### Community [Join us on Discord](https://discord.gg/vKEHMbaztf) [Visit Help Center](https://help.canwi.com.au) This information is general in nature and does not take into account your personal financial situation. It is for educational purposes only, and does not constitute formal financial advice. You should always seek personal financial advice that is tailored to your specific needs. © 2026, All Rights Reserved, Canwi Australia Pty Ltd ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Cameron", "url" : "https://blog.canwi.com.au/author/cameron" }, "dateModified" : "2026-04-08T22:34:41.252Z", "datePublished" : "2026-03-03T23:35:32.000Z", "headline" : "Understanding Inflation (and Rates of Change)", "image" : [ "https://downloads.intercomcdn.com/i/o/uika4jyq/1551365581/661201f2ce538d4983f765344243/image.png?expires=1772580600&signature=58e4a2ff045b4f8190a4700bf424dba39cb32aa4599597ecc79aca5c38f449ed&req=dSUiF8p4mIRXWPMW1HO4zURNpjiQukhaqvcwKNWKZcCuWIOQnDeIZsTckAHW%0AYxo4afvKd3pT3HOOApw%3D%0A" ], "mainEntityOfPage" : { "@id" : "https://blog.canwi.com.au/understanding-inflation-and-rates-of-change", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://blog.canwi.com.au/hubfs/Canwi_logo_black.png" } } } ```