Cost of Living Indexes highlight lack of inflation worries

The fall in inflationary pressures evidenced by the official CPI data last week (see here for commentary) is further emphasised by today’s release of the Cost of Living (COL) Indexes.

The COL Indexes are designed to answer the 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?” They consider this question for a variety of household types (given the different expenditure patterns of households). What we see for the fourth quarter is another sharp fall in the Indexes.

q/q y/y
  Q3 Q4 Q3 Q4
Pensioner & beneficiary 0.2 0.1 2.1 1.7
Employee 0.4 0.1 1.9 1.6
Age Pensioner 0.1 -0.1 1.9 1.2
Other Govt Transfer Recipient 0.3 0.2 2.3 1.9
Self-funded retiree 0.5 0.3 2.2 1.5
Headline CPI  0.5 0.2 2.3 1.7

The main drivers of price changes vary depending on household type, but a commonality across most (bar employee households) is a decline of about 2.5% q/q in the cost of health services and, for all households, of between 2-2.7% q/q in transport. Offsetting these falls to a certain extent was a reversal of the decline seen in communication costs last quarter; this quarter these costs remained static for most households.

Hopefully we can now finally put to bed the ongoing rhetoric from both sides of politics about “Aussies doing it tough with cost of living pressures”. Obviously, once a Federal election campaign gets underway, we will be sure to hear this kind of nonsense getting another day in the sun.

The bulk of households fall within the “employee” household where cost of living has been running well below the rate of headline inflation for the past 3 quarters; let alone the more reliable “core” inflation measures which are currently at 2.25% y/y.

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