Cheer up, Australia: cost of living pressures are not the worry politicians say they are

Jimmy Barnes AO, a working class man. Photo: James D. Morgan/Getty Images)

Cost of living pressures seem to be a perennial bugbear for many Australians.

From housing to healthcare, childcare and education, a tendency to gripe – and are fed the same message by politicians – particularly now wages are growing at the slowest pace on record.

Perhaps we’re right to be aggrieved, but then again, perhaps we’re shouldn’t, particularly if figures from the Australian Bureau of Statistics released earlier today are anything to go by.

According to the Bureau, cost of living pressures were close to non-existent in 2016, especially for households whose primary source of income is a salary or wage.

The ABS’ Living Cost Indices (LCI) rose fractionally in the December quarter last year, with living costs for those employed or on the age pension increasing by a paltry 0.3%.

Elsewhere, the LCI for pensioner and beneficiaries households and self-funded retirees rose by 0.6% while those for other government recipient households increased by a slightly larger 0.7%.

As a result of the paltry quarterly increase, the LCI for all household groups rose by 1.8% or less over the year, with employee household seeing costs rise by just 1%, and incredibly low figure, and one that casts doubt on whether the living costs for a vast majority of households are really increasing as fast as many think.

Now I know the question you’re asking. How is this figure from the ABS derived? It feels like costs are increasing way more that.

According to the Bureau, the LCI aims to answer the following question: “By how much would after tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?”

So the answer runs off how much would after tax incomes need to increase to purchase the same amount of goods and services since the survey was first conducted nearly two decades ago.

The ABS says the LCI reflects changes in the purchasing power of after-tax incomes of households, measuring the impact of changes in prices on the out-of-pocket expenses incurred by households to gain access to a fixed basket of consumer goods and services.

That differentiates it from the consumer price index, which is designed to measure price inflation for the household sector as a whole, it says.

One measures the purchasing power of after-tax income — how much you can buy — while the other measures how much the costs of consumer goods and services has increased.

On that score, and despite the widespread view that the costs of living are rising quickly, the LCI suggests those pressures were anything but last year.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at