This indicator suggests cost of living pressures in Australia are actually pretty weak

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  • Cost of living pressures in Australia are actually quite weak compared to what they were in the past, according to the Australian Bureau of Statistics latest Living Cost Indexes for the September quarter.
  • The LCI measures how much after tax incomes need to change to allow households to purchase the same quantity of consumer goods and services as they did on in the past. Their purchasing power, essentially.
  • In the year to September, the LCI increased by between 2% to 2.3%, depending on the household type.

Cost of living pressures dominate political headlines in Australia. However, compared to periods in the past, they are actually quite weak in 2018, at least according to the Australian Bureau of Statistics (ABS).

Here, look.

It’s the ABS Selected Living Cost (LCI) Indexes, a measure of how much after tax incomes need to change to allow households to purchase the same quantity of consumer goods and services as they did on in the past.

Their purchasing power, essentially.

This differentiates it from the consumer price index (CPI) which is designed to measure price movements in a select basket of goods and services commonly purchased by metropolitan households.

It breaks down the results by household type, depending on the largest source of income.

Employee households have wages and salaries as their main source of income, while for self-funded retiree households it comes from superannuation or property income.

Age pensioner households receive most of their income from the age pension while other government transfer recipient households are those receiving a government pension other than the age pension.

In the year to September, the LCI grew by 2% or more for all household types aside from sell-funded retirees, faster than the 1.9% increase in CPI over the same period.

For employee households, the largest group in Australia, the LCI grew by 2% over the year, marginally below the 2.2% to 2.3% pace seen for all other household types over this period.

We’ll get an update on average household disposable incomes until Australia’s Q3 GDP report is released in early December, but in the year to June real net national disposable income per capita rose by 2.1%.

From a broad perspective, a similar result in the year to September would mean the purchasing power of households was near identical to what it was a year ago.

While these are broad measures, and not reflective of individual circumstances, it suggests that cost of living pressures may not be as acute as some make out to be.

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