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There's an old saying that central banks will raise interest rates in their fight against inflation "until something breaks".
That could mean rising unemployment, falling asset prices or a general economic downturn. Of course, falling inflation would also do the trick of preventing further interest rate increases.
The latest data from the United States has given us the first indication, for some months, that the US Federal Reserve might be achieving its goal of taming inflation. The consumer price index increased 0.4 per cent last month and 7.7 per cent from a year ago, both lower than estimates, and down from the peak in inflation so far.
But the Fed has already arguable "broken" something – the economy. It's generally accepted the world's largest economy is in, or approaching, a recession.
Cracks are also appearing here
As for Australia, after seven consecutive Reserve Bank interest rate hikes, which have added hundreds of extra dollars a month in repayments to a typical mortgage, the economic and social cracks are starting to appear.
The damage of the second most aggressive interest rate tightening cycle in Australia's history is moving beyond the financial markets. How widespread the economic damage becomes depends on how high the Reserve Bank is prepared to raise its cash rate.
The central problems remain inflation that's "too high", the Reserve Bank says. The key contributors to inflation are petrol, energy and food prices. The CPI is currently 7.3 per cent, and is expected to peak at roughly 8 per cent by the end of the year.
So what could push inflation even higher?
Higher food prices could be in store as flooding removes a large amount of fruit and vegetables from supply. Gas and electricity prices could increase too. But rental prices drew some extra focus this week.
The latest ABS data show rental prices increasing ranging from 1 to 5 per cent, annually.
The Reserve Bank weighed into the discussion this week with a sobering warning. It warned rents are picking up and are expected to keep rising well into next year, causing lower income families a degree of stress.
"So higher rents could push some renters into financial stress, particularly when combined with broader cost of living pressures," RBA deputy governor Michele Bullock told a business gathering.
Economist Angela Jackson says it's concerning.
"Rent takes up a big part of your income and so if it goes up significantly it really bites, you know it's not like your coffee going up 5 per cent."
Roughly a third of households rent, and many are on relatively low incomes.
Jackson says that could leave millions of Australians struggling incoming months.
Making ends meet: boost income or cut expenses
The problem facing households is that their budgets are coming under increasing pressure: income isn't rising as fast as expenses. The way for households to resolve this is to either boost their income or cut back on their expenses.
There's some evidence Australians are now beginning to cut back on their spending.
Data from the NAB shows consumer spending fell 0.3 per cent in October – ending a nine-month run of increased spending.
Another option for renters is to try to find extra income. According to the Bureau of Statistics, the number of people holding multi jobs rose by 37,100 or 4.3 per cent in the three months to June. Almost 900,000 working-age Australians now have more than one job.
"Now what we're seeing is rather than those people in the economy who want to work full time being able to get that one job that is permanent and secure, they're having to stitch together multi-jobs that are casual," Jackson says. "Hours can change and they might not have the security that they might have had in the past."
Less money for other things
But what actually, practically happens when you can't balance your household budget, especially when renting?
"What that means is that either they have to pay [rent] and obviously that means they have less money for other things – so that's less money for food, that's less money for healthcare, that's less money for education," Dr Jackson says.
A Melbourne woman made headlines last week after reportedly asking a grocery store worker if a tub of yoghurt would keep until Christmas. She wanted that as a treat for her kids on the special day.
But what about those Australians who finding themselves choosing between buying vital medication and paying the rent?
Resident medical officer and former journalist Amy Coopes told The Drum that patients are now presenting to hospital after going without their medication for too long.
"Certainly we are already seeing cost of living pressures presenting in our emergency departments," she says. "Some people turn up and they're unwell because they haven't been able to afford their medications which is something I certainly thought you wouldn't see in this country."
As the economy slows, unemployment will increase
How much financial pain is felt across the economy depends on how high the Reserve Bank will need to raise interest rates as it tries to reduce demand in the economy.
That, it hopes, will slow inflation and reduce the cost of living. But Angela Jackson says it will also cause many Australians financial stress along the way.
"The sobering reality of the figures that we're seeing is that the economy is going to slow significantly," she says. "And that's going to mean unemployment will increase significantly across the economy. 150,000 additional Australians are going to be out of work over the next 12 to 18 months and it is going to feel like a recession whether it is officially or not," Dr Jackson says.
There's a reason the Reserve Bank describes its interest rate policy path as "narrow" – there's potential for financial, economic, and social harm as it attempts to lower inflation.
It's hard to escape the reality though that it's the most vulnerable in our community that pay the biggest price for this.