The Consumer Price Index, also known as CPI, has risen drastically in the June 2022 quarter, with an increase of 1.8 per cent. Further, CPI rose by 6.1 per cent in the last year. This is the largest rise since the introduction of the goods and services tax. This is a drastic increase in a short space of time, and it has led a lot of people to wonder how it will affect their current situation.
The CPI is one of the most commonly used tools to measure inflation and deflation and is a key factor in the Reserve Bank’s decision to raise or lower interest rates. One trip to the local supermarket and we can all notice the effect of increased CPI on our weekly grocery budget, not to mention its effect on the interest rate on our home loan.
One issue that perhaps hasn’t been considered as much is how increased CPI will affect you as a tenant or landlord. How will increased CPI affect the rent for your commercial premises?
We suggest you start by checking the rent review clause in your lease to see if rent is increased by reference to CPI or a fixed rate. Then you’ll need to decide the optimum method of increase if CPI continues to rise. If you’re a tenant, it may be better for rent to increase by a lower fixed rate. For landlords, it may be best to use CPI as to determine the rent increase.
It’s obviously a tricky issue when two different sides of the arrangement may benefit from different methods. We suggest that when entering into or renewing your lease, you stop to consider negotiating the appropriate rent review method.
The rent review clause could have a significant impact on your finances over the next few years, so it is worth taking the time to consider this detail to ensure you can maximise profit and minimise expenses for your family and your business.
https://www.abs.gov.au/media-centre/media-releases/cpi-rose-18-june-2022-quarter
