The consumer price index, which measures the average cost of a range of goods and services including food, housing, travel, clothing and education, rose 4.5per cent in the 12 months to June, its largest annual rise since December 1995, excluding the data-warping introduction of GST.

Add to that rising interest rates and ever-increasing petrol prices and University of Canberra professor of economics Phil Lewis said many families were finding themselves in trouble.

''With the CPI over 4 per cent, I think that's certain to eat into people's budgets,'' he said. ''The big problem at the moment is whether people will put up wages to counter the increasing costs. While it may seem like a fair idea, it will only add to the problem.''

Professor Lewis said the rise in costs could be attributed to three separate issues rising interest rates, rising petrol costs and the global food shortage. He said these issues had a trickle-down effect.

''Rising interest rates affect everyone including companies who then pass on the higher costs to the consumers and while the price of petrol affects families in every day living, it also increases the cost of items that need to be transported,'' he said.

Professor Lewis said the first sector to be hit by rising costs was services and entertainment.

''Restaurants will be hit hard in coming months,'' he said. ''When families look at tightening their belts, they can't stop paying their mortgage, and they can't stop buying petrol because they need to get to work, so clubs, cafes, bars and theatres get cut out.''

Professor Lewis said Australia's economic future was uncertain.

''We're currently on the knife edge and I don't know which way we'll go,'' he said. ''The future is potentially quite bleak banks are in trouble, posting higher interest rate rises than the Reserve Bank but we have to remember that the economy is doing quite well. Most sectors have a shortage of labor at the moment so we mustn't be too gloomy.''