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Low-income households, older households, and households with mortgages are facing the highest cost-of-living pressures in Australia, according to new analysis.
Key points:
- Low income households face the greatest cost-of-living pressures
- But homeowners with mortgages are experiencing big increases in their living costs at the moment
- Annual wages growth is 2.3 per cent, while inflation is 7.3 per cent
Consumer prices as measured by the Australian Bureau of Statistics (ABS) have risen by 7.3 per cent over the last 12 months, which is the fastest rate of inflation since 1990, and officials fear inflation will hit 8 per cent by the end of the year.
But the bureau's consumer price index (CPI) is a blanket measure, and not all households are facing the same cost-of-living pressures.
That means the impact of inflation is not being felt equally.
For example, as the Reserve Bank of Australia (RBA) rapidly lifts interest rates, households with mortgages are facing much higher cost-of-living pressures, on average, than renter households and households that own their homes outright.
Different households face unique costs
Associate Professor Ben Phillips, from the Australian National University (ANU), has broken households down into different groups to see how cost-of-living pressures are affecting each one.
He says, according to the main ABS measure, consumer price inflation is running at an annual pace of 7.3 per cent and the wage price index is running at 2.3 per cent.
That shows that wages are growing at a much slower pace than prices, so the "real" value of wages are deteriorating significantly at the moment.
However, he says that national figure is not telling the whole story about the cost of living because households can have multiple sources of income, some of which aren't included in the wage price index.
For instance, income sources can include wages and salaries, income from businesses, welfare payments, superannuation income, income earned from interest, and income from shares.
Overall, he says total disposable household income (which refers to income from all sources after taxes have been paid) has grown by just 1.3 per cent in the last 12 months, compared to inflation of 7.3 per cent.
That is worse than the difference between headline wages and inflation.
However, he says over the last five years, total disposable household income has grown by 3.7 per cent, compared to wages growth of 2.1 per cent and inflation of 2.9 per cent, so households have done better than the headline wages figure suggests over the longer-term.
But the increase in the cost of living differs between households, and has generally been lower for most households than the CPI would suggest.
Here are his cost-of-living indexes, for different household types, for the September quarter.
Increase in cost of living, according to property
One of the big differences between the CPI and other cost-of-living measures is that the CPI excludes mortgage interest costs.
When you include those costs, and then divide households into different groups according to if they're renting, have a mortgage or own their home outright, this is the result.
Households with mortgages are currently facing much larger increases in their living costs than the other two groups, thanks to the Reserve Bank's interest rate hikes.
But over the last five years, households who own their homes outright have faced higher cost-of-living increases than the other two groups on average.
- Owner: annual (6.6 per cent), 5-year avg (3 per cent)
- Mortgage: annual (8 per cent), 5-year avg (2.4 per cent)
- Renter: annual (5.6 per cent), 5-year avg (2.4 per cent)
Increase in cost of living, by age cohort
When you divide the population into different age cohorts, it shows older cohorts typically face higher cost-of-living pressures than younger cohorts.
That finding holds for the last 12 months, and for the average of the last five years, whichever way you cut it.
- Under 35: annual (6.3 per cent), 5-year avg (2 per cent)
- 35 to 49: annual (6.8 per cent), 5-year avg (2.2 per cent)
- 50 to 64: annual (7.1 per cent), 5-year avg (2.4 per cent)
- 65+: annual (6.9 per cent), 5-year avg (2.8 per cent)
Increase in cost of living, by source of income
When you consider the cost-of-living pressures facing different cohorts depending on their main source of income, you get another result.
Over the longer term, cost-of-living pressures are greatest for households that need government assistance of some kind.
However, over the last 12 months, both employers and their employees have faced slightly higher increases in their cost of living than households that need government income assistance.
- Wage and salary: annual (7 per cent), 5-year avg (2.5 per cent)
- Employer: annual (7.1 per cent), 5-year avg (2.6 per cent)
- Government transfer recipients: annual (6.9 per cent), 5-year avg (3 per cent)
- Other: annual (6.4 per cent), 5-year avg (2.7 per cent)
Increase in cost of living, by postcode
The rising cost of living has also not been equally distributed around the nation.
For example, Western Australians have benefited from much lower increases in their electricity and gas costs, thanks in large part to state government energy policies.
For logistical reasons, the ABS only collects inflation data for the capital cities. The 21 regions with the lowest price increases were all in Perth.
Inflation in Mandurah, Cottesloe and Melville was the lowest, at 4.8 per cent over the year to September.
But nowhere in Perth saw price rises of 5.5 per cent or more, compared to the national average of 7.3 per cent.
Inner-city Melbourne and Sydney (6.2 per cent) saw the smallest price rises outside Perth, followed by the generally wealthier inner-suburban areas of those two cities.
Meanwhile, the five regions with the highest price rises were in and around Hobart, led by Brighton's 8.7 per cent jump.
Areas in and around Darwin and Adelaide also featured towards the top of the list for high-inflation localities.
Increase in cost of living, by income quintile
Dr Phillips has also broken down the distribution of national income into five groups, called quintiles.
Each quintile represents a different 20 per cent block of households.
Quintile 1 refers to the lowest 20 per cent of households by income, while quintile 5 refers to the highest 20 per cent of households by income.
According to his analysis, the poorest 20 per cent of households by income is currently facing the equal-highest cost-of-living pressures of any income group.
And, over the longer term, they face the highest cost-of-living pressures in the income distribution.
- Quintile 1: annual (7 per cent), 5-year avg (2.8 per cent)
- Quintile 2: annual (6.9 per cent), 5-year avg (2.7 per cent)
- Quintile 3: annual (7 per cent), 5-year avg (2.7 per cent)
- Quintile 4: annual (7 per cent), 5-year avg (2.5 per cent)
- Quintile 5: annual (6.9 per cent), 5-year avg (2.4 per cent)
Last month, Dr Phillips also produced analysis showing that the Albanese Government's first budget will end up making income inequality worse because the financial benefits of its major tax and welfare policies will flow overwhelmingly to Australia's richest households.
That outcome will be driven by the "stage 3" tax cuts that have been included in the budget, which were inherited from the former Morrison Government.
Those tax cuts will send $12 billion in extra disposable income to the highest 20 per cent of households by income (quintile 5) in 2024-25, while sending a mere $40 million to the poorest 20 per cent of households (quintile 1).
That unequal distribution of tax cuts will help different households to address their cost of living in unequal ways.