Cost of living pressures might not be forcing Australians to tighten the purse strings after all

Justin Sullivan/Getty Images

A common talking point in Australian politics and the general community is that cost of living pressures are out of control, leaving many households struggling to buy only the bare necessities.

You’re probably heard that a lot in recent years, fueled by weak household incomes growth and prior increases in essential goods and services charges such as gas, electricity and healthcare.

Given there’s a federal election next year, we’ll probably hear a lot more about cost of living pressures in the coming months from both sides of the political spectrum.

While that’s the prevailing narrative, this chart casts doubt as to whether these pressures are only allowing households to buy needs rather than wants in 2018.

For context, household consumption is the largest part of the Australian economy at over 50%.

It measures inflation adjusted spending on goods and services among households.

Macquarie Bank

The chart from Macquarie Bank’s Sales and Trading desk, shows real year-ended consumption growth going back to the start of the century.

The black line shows total household consumption growth while the red line excludes consumption of healthcare, education, utilities, ciggies and rents.

Notice something?

Excluding many of the items that are most routinely complained about, “market-based” household consumption is actually growing faster than total consumption, continuing the pattern in place for much of the past five years.

It does raise questions as to whether Australians, as a collective bunch, are being forced to forgo the little luxuries in life in order to pay for essential items.

While real consumption is measured in volumes rather than actual costs, meaning that some of the decline in essentials could be due to a change in household behaviour (ie. they’re using less due to higher costs), the evidence suggests consumption of more non-essential items is still growing at a decent pace, helped in part by downward pressure on prices as seen in recent inflation reports.

It’s also worthwhile pointing out these are aggregate measures of consumption, and not reflective of what individual families may be experiencing.

Some are undoubtedly struggling.

However, from a broader national perspective, things are still looking alright.

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

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