Will the jump in living costs lead to an Age Pension boost?

The Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) figures for the December 2021 quarter, and signs point to an Age Pension increase in March.

The annual cost-of-living numbers reveal what you may already know – prices are going up. The CPI looks at the prices of not just goods, but also the everyday services you use.

And with older Australians receiving only a modest bump to the Age Pension rate last September, the initial economic signs are pointing to a more significant rise when rates are indexed again in March.

The new figures show the CPI rose by 1.3 per cent in December, and 3.5 per cent annually, the highest CPI rise seen since 2014.

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The ABS says the rise is driven primarily by new house prices (up 4.2 per cent) and fuel (up 6.6 per cent).

Whether this means an Age Pension increase in March depends on how these numbers compare with the Pensioner and Beneficiary Living Cost Index (PBLCI), set to be released next week.

The two indexes are closely related, both measuring cost-of-living pressures for Australians, but the PBLCI is more pensioner-specific than the CPI.

The figures from these two indexes are then benchmarked against the Male Total Average Weekly Earnings (MTAWE) figures, due to be released next month.

If they are lower than the MTAWE figure, Age Pension rates generally go up.

Read: Government says Age Pension is ‘here to stay’

Domestic travel and accommodation costs jumped 4.8 per cent in the quarter, after the nation’s two largest states – New South Wales and Victoria – eased lockdown restrictions and began to reopen their economies in the lead-up to the Christmas period.

Other big price movers were transport costs (up 2.8 per cent in the quarter), clothing and footwear (up 2.6 per cent) and insurance and financial services (up 1.2 per cent).

“Shortages of building supplies and labour, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, townhouses and apartments,” says ABS head of prices statistics Michelle Marquardt.

“Annual price inflation of goods surpassed that of services in the December quarter and was the highest since 2008.”

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Ms Marquardt says fuel prices were the largest single contributor to higher prices of goods. A combination of rising crude oil prices (due to deliberate underproduction in oil-producing nations) and increased global demand as COVID lockdowns end has driven fuel prices sky high.

On top of that, disruptions to global supply chains due to the pandemic have only served to drive the price of goods higher still.

“Fuel prices were the largest contributor to higher goods inflation,” Ms Marquardt says. “More broadly, global supply chain disruptions and material shortages, combined with rising freight costs and high demand, contributed to price increases across a wide range of goods, including dwelling construction materials, motor vehicles, furniture and audiovisual equipment.”

Do you think there will be a significant boost to Age Pension rates in March? Have you noticed the price of goods and services rising? Let us know in the comments section below.

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Written by Brad Lockyer