Concerns that cost of living pressures are intensifying are real, according to new data from the Australian Bureau of Statistics (ABS).
The ABS found cost of living pressures increased for for all households in late 2017, regardless of whether your main source of income was salaries, the pension or retirement savings.
The Bureau’s Selected Living Cost Index (LCI) rose between 0.6% and 1% in the December quarter, adding to similar increases seen in the previous quarter.
Combined, that left the LCI up by between 1.6% to 2.4% on a year earlier, depending upon your household type.
This table from the ABS shows the breakdown of the quarterly and year-on-year change in the LCI by household type.
Employee households are those whose main source of income is from wages and salaries. Self-funded retiree households source of income is 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.
Now we know what your thinking.
What’s this LCI and what do the increases mean, and why is the CPI figure in the table, too?
Essentially, the LCI is a measure on 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
Put simply, how much the household disposable income needs to increase to keep up with everyday living expenses.
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.
So cost of living pressures increased faster than CPI for most households over both the quarter and year.
For employee households, the largest cohort, the annual increase was the fastest since the June quarter of 2014.
In comparison, the ABS’ latest wage price index — measuring the average change in ordinary hourly wage rates — rose by just 1.86% for private sector wages in the year to September, and by 2.37% for those in the public sector.
We’ll get updated figures on wages later this month, but it’s unlikely to show that hourly wage rates — not total pay — kept pace with cost of living pressures.
The findings of the ABS report fit with those seen in the National Australia Bank’s (NAB) Consumer Behaviour Survey, revealing that cost of living pressures was the greatest source of anxiety for Australian households in the final quarter of last year.
It found around two in five Australians suffered some form of financial hardship during the quarter, with that figure rising sharply for lower-income earners and younger Australians.
Over 50% of low income earners reported some form of hardship, along with almost one in two 18 to 49-year-olds.
Nearly half of those surveyd also reported they were “extremely” concerned about their current financial position, nominating paying their utility bills as the biggest impact on their financial position.
21% of respondents said they were unable to pay a bill during the survey period, followed by 18% who said they did not having enough money to buy food and basic necessities.
“Cost of living is still weighing most heavily on [households], highlighting the disconnect between low levels of economy-wide inflation and consumer focused costs,” said Alan Oster, NAB Group Chief Economist.