In today’s economic climate, capital fund and sinking fund forecasts must do more than estimate asset lifecycles—they must reflect the inflationary forces shaping service contracts, maintenance costs, and investment returns. For property owners and strata committees, understanding the nuances of Australia’s inflation trends is essential to building resilient, future-ready financial plans.
1. Non-Tradable Inflation: The Real Cost Driver
Australia’s inflation is not uniform. The Consumer Price Index (CPI) splits inflation into two categories: tradables and non-tradables.
- Tradables are goods and services influenced by international markets—think fuel, electronics, and imported materials.
- Non-tradables are domestic services—like building maintenance, strata management, and compliance inspections.
As of 2025, non-tradable inflation sits at 5.0%, compared to just 1.5% for tradables. This matters because capital fund forecasts are dominated by non-tradable expenses. If your forecast uses CPI averages without distinguishing between these categories, you risk underestimating future costs.
Examples of Non-Tradable Costs:
- Lift servicing contracts
- Fire safety inspections
- Cleaning and landscaping
- Waterproofing and repainting
- Insurance and compliance services
2. Wage Pressures Are Driving Up Service Costs
Australia’s labour market remains tight, and rising award wages are pushing up the cost of services. Contractors, tradespeople, and service providers are adjusting their rates to reflect wage growth, fuel costs, and compliance overheads.
Real-World Impacts:
- Lift servicing contracts have increased by 8–12% in some regions.
- Fire safety providers are introducing call-out fees and compliance surcharges.
- Cleaning and landscaping services are adjusting rates to cover labour and fuel inflation.
These pressures directly affect strata budgets and highlight the need to review service contracts annually and adjust sinking fund forecasts accordingly.
3. Interest Rate Cuts Are Unlikely—Forecast Conservatively
The Reserve Bank of Australia (RBA) has signalled that persistent inflation and global uncertainty. This has two key implications:
- Investment returns may remain modest, limiting the offsetting effect of interest earnings in your forecast.
- Borrowing costs for emergency works or underfunded projects will stay elevated, increasing financial risk.
Forecasting Tip:
Use conservative interest assumptions (e.g., 1.5%–2.5%) and avoid relying on high returns to balance your sinking fund. Instead, focus on accurate cost projections and realistic contribution schedules.
Best Practices for Forecasting in 2025
| Practice | Why It Matters |
|---|---|
| Use non-tradable inflation rates | Better reflects service and maintenance costs |
| Review service contracts annually | Captures real-world price changes |
| Apply conservative interest assumptions | Avoids overestimating fund growth |
| Document assumptions clearly | Builds stakeholder trust and transparency |
Conclusion
Australia’s inflation landscape—marked by high non-tradable inflation, wage-driven service cost increases, and stable interest rates—demands a cautious and informed approach to capital fund forecasting. By aligning your financial models with these trends, you’ll build forecasts that are resilient, defensible, and future-ready.