Statistics show there's no reason to whinge
While the consumer price index showed a rise of 2.2 per cent in 2012, a separate living cost index for employees rose by only half that. Yes, utilities shot up, but interest rates fell - and interest rates are not included in the CPI.
The ABS publishes separate living-cost indices for five household types: employee, age pensioner, self-funded retiree, pensioner and beneficiary and other government transfer recipient. As the ABS explains it, the living-cost indices have been designed to answer the question: By how much would after-tax incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?
The different household types spend money differently. Most age pensioners are not paying off a mortgage or buying nappies; and walking frames and aged-care costs are not high on the agenda for the average employee.
The consumption patterns can throw up marked differences. While the living-cost index for age pensioners did not move at all in the December quarter, it was up by 2.4 per cent over the year, outpacing the CPI. Self-funded retirees - presumably a similar age bracket - saw their living-cost index jump by 0.3 per cent last quarter but it is only up 1.9 per cent over the year.
Turns out those good-time-Charlies of the self-funded set have a relatively higher proportion of expenditure than the general population on recreation and culture, which was more expensive in the December quarter.
Age pensioners are not as likely to be off to the opera, but a higher proportion of their expenditure goes on health and food and non-alcoholic beverages, which fell in the latest quarter.
Which households are doing better or worse than the CPI varies from quarter to quarter, year to year, depending on what are the main influences on the CPI movements. When alcohol and tobacco prices are jumping, it hits non-age welfare recipients harder as a higher proportion of their expenditure goes on booze and smokes.
Age pensioners need not worry about the impact of topping the living-cost indices chart last year though - age and several other (but not all) government benefits are indexed to the higher of the consumer price index, the age pensioner living-cost index and male total average weekly earnings (MTAWE). MTAWE outpaces the other two measures and by a considerable margin, up by 3.9 per cent over the past financial year, while the CPI advanced by just 1.9 per cent in that period, so that the average pensioner's standard of living has been steadily increasing, just as it has been for most Australians - not that you will find many who will say so.
Tucked away in federal budget papers is a chart estimating the real disposable income changes over the past five years for various household types by a rough measure of below-average, average and above-average income. It averages about an 8 per cent gain, with the standout winners being single pensioners, up 22.6 per cent.
But you probably won't believe the ABS about any of this sort of stuff. The politicians after your vote and the populist media out to scare you are much more convincing. Besides, it is human nature to remember the jump in the last electricity bill but forget the last pension increase. It is also human nature to relish a good whinge, particularly when your nation is the world champion in that sport - we're still the mob that thought Olympic silver medals were not good enough.
The election will be fought over plenty of issues, but convincing voters they are suffering a cost-of-living crisis is sure to get an outing, despite the carbon tax turning out to be a damp squib. It worked well enough for Kevin Rudd in 2007 when he bored into people that "working families are doing it tough". Working families, in fact, had never had it so good. With unemployment at 4.4 per cent, just about anyone employable who really wanted a job could have one - some people who didn't want one were employed as well. Wages were surging as part of an economy unsustainably bubbling on the commodities price windfall, surging debt and asset prices.
This time round, there are an extra couple of hundred thousand Australians out of work with the unemployment rate at 5.4 per cent, but there also are more than 1 million extra Australians in work. Never mind, perceptions are so much more important than reality.
Frequently Asked Questions about this Article…
The ABS living-cost indices measure how much after-tax incomes would need to change for different household types to buy the same quantity of goods and services as in a base period. They are calculated separately for household groups (employee, age pensioner, self-funded retiree, pensioner & beneficiary, and other government transfer recipients). The CPI is a broad measure of overall consumer price inflation, while the living-cost indices reflect the specific consumption patterns of each household type, so they can move differently from the CPI.
According to the article, employees saw their living-cost index rise by just 1.1% over the year, while the headline CPI rose by 2.2% in 2012. The piece notes that utilities rose but interest rates fell (and interest costs are not included in the CPI), which helped keep employees' measured living-cost increase relatively low.
The article highlights that age pensioners' living-cost index was up 2.4% over the year — outpacing the CPI — while self-funded retirees had a 0.3% rise in the December quarter and were up 1.9% over the year. Employees had a smaller rise (1.1%). Differences reflect spending mixes: self-funded retirees spend more on recreation and culture (which was pricier in the quarter) while age pensioners spend more on health and food (which fell that quarter).
Price moves in specific categories hit household types differently because of their spending patterns. For example, when alcohol and tobacco prices jump it tends to hit non-age welfare recipients harder because they spend a larger share on those items. Utilities increased in the period covered, but interest rates fell — and interest costs are excluded from the CPI — so the net effect on measured living costs can differ across groups.
Yes. The article notes many government benefits (including age and several other benefits) are indexed to the higher of the CPI, the age pensioner living-cost index and male total average weekly earnings (MTAWE). Over the past financial year cited, MTAWE rose 3.9% while the CPI grew 1.9%, which has helped boost the average pensioner's standard of living.
Tucked into the federal budget papers is a chart showing rough estimates of real disposable income changes over the past five years for below‑average, average and above‑average incomes. The average gain is about 8%, with standout winners such as single pensioners, who were estimated to be up about 22.6% over that period.
The article argues that the statistics suggest the picture is more nuanced than constant media and political claims of a universal cost‑of‑living crisis. While some costs (like utilities) rose, other factors (falling interest rates, wage measures used for indexation) offset that for many household types. The piece also stresses that perceptions matter politically — despite more than a million extra Australians being in work, unemployment had risen from 4.4% to about 5.4% — so investors should interpret headline rhetoric alongside the underlying data.
ABS living-cost indices and the CPI reveal which parts of household budgets are getting pricier for different groups (for example, recreation and culture versus health and food, or utilities). Everyday investors can use those patterns to understand demand trends across consumer sectors and the potential impact on related businesses, but the article stops short of recommending specific investments — it simply highlights that different household spending mixes drive different inflation experiences.
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