Age Pension increase to be 'wiped out' by rising grocery costs

The biggest Age Pension increase in seven years may have come just in time, as older Australians will be paying more for groceries and other essential goods heading into Christmas, say economists.

It’s no secret that COVID is wreaking havoc on retail supply chains. Surging shipping costs out of China and local labour shortages are making it increasingly more expensive for businesses to put essentials on the shelves.

Economists are warning households to expect higher prices as these cost increases are passed on to consumers.

“Recent COVID outbreaks across Asia have really exacerbated existing supply chain issues, vastly increasing shipping costs,” APAC economist Callam Pickering told TND.

“It’s going to hit low-income households who spend a larger share of their income on food and beverages.”

The grocery industry is facing the biggest price rises in food and groceries in more than a decade. Consumers can expect cost increases for meat, sugar, eggs and dairy products as prices pass from suppliers to supermarkets.

Percentage price rises could be in the high single digits within the next six months, say analysts, depending on how much supermarkets decide to pass on to consumers or absorb themselves.

“We are beginning to see an increased number of suppliers approaching us for cost price increases in the grocery space,” says Coles boss Steven Cain.

“[That] is very aligned to increased shipping costs, or to raw ingredients.”

High single digit price rises may not sound like much to many Australians. For an age pensioner, an 8 or 9 per cent increase on a weekly shopping bill of $100 quickly wipes out any benefit of the 1.6 per cent increase starting on 20 September.

The costs of vegetable oil and related products such as frozen chips have already increased and more product prices are expected to surge in the coming weeks.

“We are starting to see more cost increases come forward and we’ll work through those on an individual case basis,” says Woolworths boss Brad Banducci.

While the costs of red meat, sugar and dairy products is expected to increase, the cost of fruit and vegetables – particularly avocados – could actually come down.

Consumers were already paying inflated process for fruit and veg, caused by natural disasters and labour shortages.

“The effects of bushfires will diminish over time, but as long as borders are closed it’s going to be quite difficult to get workers out to regions,” says Mr Pickering.

Read: Could cost of key essentials outpace any September Age Pension boost?

The price of shipping containers coming from China is a major factor behind the soaring costs, with some rising from $200 before COVID to more than $5000.

This translates to cost increases on most packaged products, including groceries and other goods, meal deliveries and takeaway foods.

Shipping disruptions will also lead to product shortages heading into Christmas, say retailers.

“We’re not going to be getting back to what we were previously seeing until 2023 at a minimum,” says Jackson Meyer, chief executive of freight forwarding firm Verus Global.

“It’s going to be a catastrophe – week by week we’re struggling.”

Currently, one in three over 65s live below the poverty line.

Any advantages of the 20 September Age Pension increase will be cancelled by the increasing cost of groceries and laggard interest rates.

Yet, when announcing the September welfare payment increases last week, Minister for Families and Social Services Anne Ruston intimated that older Australians were somehow favoured by how the government’s ‘formula’ worked this time around.

YourLifeChoices asked the minister for clarification.

“[We] would be interested in who is saying this as, when indexation didn’t result in an increase last year, Labor was quick to attack the government claiming it was our fault it being a legislated formula,” the minister’s senior adviser told YourLifeChoices.

“We of course stepped in and provided two additional economic support payments of $250 at the end of last year and early this year to make sure pensioners weren’t affected.”

Read: Pension increase welcomed but retirees who rent still in ‘crisis’

Ms Ruston told YourLifeChoices: “Indexation of payments within the social security system is calculated based on a formula in social security law designed to ensure payments keep pace with the cost of living and community living standards.”

The minister maintains the increases would help recipients keep up with changes in living costs.

“Indexation is one of the regular mechanisms we have built in to our social security safety net to make sure rates reflect the prices payment recipients see at the supermarket and at the bowser,” she recently told The Senior.

The expected price rise for groceries and essential items suggests the latest pension increase – though the biggest in seven years – still isn’t enough to keep up with the cost of living.

Advocacy groups want the government to recognise the hardship facing pensioners and other people on low incomes as they continue to struggle with the rising cost of living issues.

Currently, pensions are indexed twice each year by the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI). This is then benchmarked against a percentage of Male Total Average Weekly Earnings (MTAWE), which is equal to around 27.7 per cent of MTAWE.

To help the Age Pension keep up with rising living costs, advocacy group Fair Go for Pensioners suggests the federal government increases this rate from 27.7 per cent to 35 per cent of MTAWE.

Read: Centrelink Q&A: How are pension increases calculated?

It also calls for adoption of quality indexation for all income support payments using Age Pension indexation measures, and an increase in the Commonwealth Rent Assistance (CRA) maximum rate for renting retirees by at least $30 a week for couples and $50 for singles -indexed to housing costs not CPI.

Do you think the Age Pension is enough to help you keep up with living costs? Should the pension be increased further, or do pensioners already get enough? Why not share your opinions in the comments section below?

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Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.