Cost of Living Indexes confirm what we all know; inflation is not an issue

The reality that inflation is not an issue has been confirmed with the release of the Cost of Living Indexes from the ABS today. These will come as no real surprise given the weakness of the CPI data released last week (see here for details).

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 slowdown in the Indexes.

q/q y/y
  Q3 Q4 Q3 Q4
Pensioner & beneficiary 0.1 0.2 1.7 0.9
Employee 0.1 0.0 1.6 0.9
Age Pensioner -0.1 0.4 1.2 0.8
Other Govt Transfer Recipient 0.2 0.2 1.9 1.0
Self-funded retiree 0.3 0.1 1.5 1.3
Headline CPI  0.2 0.2 1.7 1.3

The main drivers of price changes vary depending on household type, but a commonality across most is a decline of about 4.2% y/y in the cost of health services and of between 6-8% q/q in transport.

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 4 quarters; let alone the more reliable “core” inflation measures which are currently at an average of 2.35% y/y. A large part of the reason for this wide divergence is the fact that the “core” inflation measures will have excluded the sharp falls in the cost of fuel which the COL will not have done.

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