Rising price of living in Australia

Australia might be known as the lucky country, but you need to have plenty of money to actually enjoy it, writes Ruth Williams.

When mental health researcher Laura Dainton Smith, 28, moved back to Australia last year after 12 months in the US, she was jolted by the prices of daily essentials like clothes and food.

It wasn't so much that the prices in Australia had gone up much in the year she and partner Will spent living in Providence, Massachusetts. It was more that they'd become used to the cheaper US prices - and paying so much extra for the same items hurt.

"Clothes, food, alcohol, make-up, it's often half the price over there," Dainton Smith says. "We have to plan and budget a lot more carefully to be able to have the things that we could take for granted in the US."

This week, a Deutsche Bank report illustrated what many suspect - whether catching public transport, ordering a beer or buying medicine to battle a cold, Australians pay among the highest prices on the planet.

The report, which tracks the prices of an array of goods and services in cities and countries around the world, found that Melburnians and Sydneysiders pay almost 40 per cent more for movie tickets than Manhattanites and Parisians, for example, with cinephiles in Wellington and London paying only slightly more.

Pick up a two-litre bottle of Coke at a supermarket in Melbourne or Sydney and you'll pay almost 50 per cent more for the sugar and caffeine concoction than in Berlin or Auckland. Planning on ordering mum a bunch of roses for Mother's Day? That will cost you about $US139 ($134), more than in any of 16 other countries tracked by the survey.

The Deutsche report uses prices in New York as a baseline, and converts all prices to $US. It echoes the findings of the Economist Intelligence Unit's annual Worldwide Cost of Living survey, which ranked Sydney and Melbourne as the third- and equal-fourth most expensive cities in the world to live.

Ten years ago, not a single Australian city was in the top 10.

It's a stark demonstration that - eight years since the mining boom took off, and more than two years since the Aussie dollar breached parity with the greenback - Australia has become one of the most expensive places in the world to live.

Or, in the words of Choice chief executive Alan Kirkland, it "shines a bright light on how much we are being fleeced".

Ask why Australians pay so much more and the answers vary depending on the item - and the person answering the question. For example, Australia's high taxes on tobacco help explain why a cigarette in Australia costs more than in 27 other countries - $US17.22 for a pack of Marlboro compared with $US1.10 in Manila, Deutsche says.

The cost of a pint of beer in Australia is the third-highest among 17 countries. According to the Australian Hotels Association, taxes make up about about 20 per cent of the cost of a beer served in a pub.

But while alcohol and tobacco attract higher taxes, Australia has low import tariffs compared with Europe and the US, making it "hard to know" why imported goods are so much more expensive, says economist Stephen Koukoulas.

Koukoulas, managing director of Market Economics, suspects that the cost of transporting items to Australia and around this vast continent may still be a factor in price differences.

But Choice believes that many companies charge more for products in Australia simply because they can. "It is about marketers deciding what is the highest price they can charge," Kirkland says.

"Australians have historically paid more for a whole range of goods ... but in many cases when you put it to the test the increased cost of selling in Australia just didn't hold up any more."

According to the Deutsche Bank report, Australians pay 26 per cent more for an iPhone than US consumers, and 13 per cent more for an Apple Macbook. Choice has been campaigning against price discrimination in IT products and services, the subject of a parliamentary inquiry in Canberra.

But the good news is that even if they pay more, Australians are paying less than they used to for imported items such as clothing, shoes and cars.

Australia is now the equal-third cheapest of 17 countries in which to buy a pair of adidas sports shoes, Deutsche Bank found, with the price having dropped by more than $US5 in 12 months. A pair of Levi's jeans bought in Melbourne may still be almost double the price of the same pair bought in New York, but they are still cheaper than in Paris, Hong Kong and London.

The high dollar has increased Australians' purchasing power, and competition from online shopping has helped force down prices of products such as make-up and clothes.

This week's Consumer Price Index data found that the prices of tradeable goods - such as pharmaceuticals, vegetables and tobacco - fell by 1.2 per cent in the March quarter.

But the figures also showed that the cost of non-tradeables like restaurant meals, shoe repairs or education rose 1.3 per cent. The Deutsche research confirms that many things that cost a lot more in Australia - such as hotel rooms, a flower delivery or a beer in a pub - involve labour, reflecting Australia's high wages.

Chris Morris, whose Colonial Leisure Group owns a portfolio of Australian pubs and restaurants and a conference and wedding venue in Dorset, England, says labour costs are a big factor in inflating the price of a beer. He warns of the impact of penalty rates and high wages on the competitiveness of Australia's tourism and hospitality industries, which struggle to convince Australians to spend their mighty Aussie dollars at home.

"People come here and say, 'What? Ten dollars for a pint of beer! It's three quid in the UK'," says Morris, who estimates that Australian labour would cost, on average, three times more than in Britain.

But the higher wages mean that, in many cases, Australians can actually afford to pay the higher prices, Koukoulas says.

Wages in Australia are about 50 per cent higher than in the US or New Zealand, and average weekly earnings have risen roughly 3.5 per cent a year for the past five years. Australian wages have outstripped inflation for more than a decade.

"[It costs more here] to pay a person to sit in a retail shop or to operate a website or to distribute an item. It is not necessarily a bad thing but a high income, high cost country shows up in the prices that we pay," Koukoulas says.

"If you want to pay the same as what Americans are paying, then accept American wages. You can't have the low prices without the low incomes."

Saul Eslake, chief economist at Bank of America Merrill Lynch Australia, says the Deutsche report would have been more useful had it compared prices of items as a proportion of earnings in each country. This would show how affordable or expensive each item was for a person earning the local currency.

But he says the Deutsche report - and others like it - should serve as a reminder of the challenges facing the Australian economy, including how it will compete against lower-cost countries.

Australia may have high wages, "but that doesn't lead me to say that the answer is to cut wages," Eslake says. "If this relatively high wage structure is to be sustained, without adverse consequences for employment, then we need to boost productivity."

Getaway

The Weekend Getaway Index

Sydney 193%

Paris 127%

Melbourne 107%

Berlin 104%

Singapore 97%

New Delhi 44%

Car

New Volkswagen Golf 2.0 TDI (or equivalent), no extras

Singapore 424%

Sydney 151%

Melbourne 144%

Paris 125%

London 114%

New Delhi 71%

Petrol

One litre

Britain 210%

France 208%

Australia 171%

Singapore 162%

India 139%

iPhone

France 137%

India 129%

Australia 126%

Britain 124%

Singapore 118%

Pint of beer

At an average bar

France 157%

Singapore 139%

Australia 137%

Britain 76%

India 29%

Transport

Public transport minimum fare

Australia 161%

France 104%

Britain 86%

Singapore 32%

India 8%

Cab ride

For 3 kilometres

London 113%

Sydney 110%

Melbourne 100%

Paris 97%

New Delhi 9%

Shoes

One pair sports shoes

France 174%

Singapore 161%

Britain 134%

Australia 100%

India 91%

Big Mac

Australia 112%

France 112%

Britain 97%

Singapore 83%

India 38%

Coffee

Starbucks prices

Paris 120%

Sydney 112%

London 89%

Singapore 83%

New Delhi 58%

NEW YORK PRICE = 100%

SOURCE: DEUTSCHE BANK, ECONOMIST INTELLIGENCE UNIT