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

pension boost

A predicted September Age Pension boost may mean very little if the cost of household staples stays high and outpaces any potential income gains for pensioners.

Prices of petrol, fruit and vegetables and other essential goods spiked over the June quarter, and experts say they’re not coming back down any time soon.

The pandemic has worsened cost-of-living pressures for individuals and businesses providing goods and services. Supply chain issues plague all points of the production and delivery process. Farmers can’t get cheap foreign labour to pick fruit and produce, shutdowns have restricted factory and processing staff and the price of fuel has driven up transport costs. 

And COVID is not the only ‘natural’ disaster to blame. Floods in NSW wiped out some crops and what is left is being sold at a premium.

Read: CPI figures point to a pension increase in September

Prices of vegies soared by 6.6 per cent (seasonally adjusted) in the June quarter. Fruit is now 5.1 per cent more expensive than in the previous quarter. Beef prices rose 4.2 per cent

There’s greater demand for furniture and new cars, which could be blamed on federal budget incentives to spend and a rush on new house builds and renovations. Timber shortages have pushed up furniture prices 3.8 per cent and vehicle prices have risen 2.2 per cent.

Petrol prices rose 6.5 per cent as global oil prices increased.

“Rising fuel prices accounted for much of the increase in June quarter CPI [consumer price index] with prices surpassing pre-pandemic levels,” says Australian Bureau of Statistics (ABS) head of prices statistics Michelle Marquardt.

Overall, about 70 per cent of consumer prices tracked by the ABS rose in the June quarter and consumer prices are 1.8 per cent higher than before the pandemic.

Households have had to cover all these increases. Wages fell 4.5 per cent below pre-COVID levels to add insult to injury.

Read: One million Australians to be excluded from Centrelink payments

A 1.4 per cent Age Pension increase predicted by some pundits will only go so far in covering these costs.

Worse, these high prices and some of these shortages are likely to stay – at least for a while.

The impact of flooding will be felt for at least a season, but labour shortages caused by international border closures could keep food prices high for a while – at least until Australia’s slow vaccine rollout progresses and overseas workers return, says Indeed APAC economist Callam Pickering.

“Supply chain issues are starting to rear their ugly heads,” he told TND.

“It’s likely we’re going to see upward pressure on food prices over the next year or two.”

Food prices will remain unstable and the only way to lower your weekly spend is to do the legwork yourself, says EY chief economist Jo Masters.

“Over time, the market will find a new equilibrium,” says Ms Masters.

“Food is always very volatile and, at the end of the day, you need to shop smarter – you need to find those items that haven’t been as impacted.”

Read: Shopping tip could save you thousands

While pensioners may receive a minor increase in income in September, working households won’t be as lucky, with economists forecasting the jobless rate spiking from 4.9 per cent to 5.6 per cent in August.

Many households will have lower incomes over the next three to six months.

“The household sector is getting hit from a variety of different directions at the moment. We know the impact is very uneven,” says Mr Pickering.

“Some households are doing very well, and others are really struggling.”

A modest lift in underlying inflation may start to signal better news for retirees living off income derived from interest, as it rose from a record low of 1.1 per cent per annum in March to 1.6 per cent in June.

But it’s short of the 2 to 3 per cent the RBA wants to see before bringing the cash rate above 0.1 per cent.

Have you noticed the cost of common goods going through the roof? How do you make ends meet? How much extra would you need to cover your monthly costs? Why not share your thoughts in the comments section below?

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Written by Leon Della Bosca

Publisher of YourLifeChoices – Australia's most-trusted and longest-running retirement website. A trusted voice on Australia's retirement landscape, including retirement income and planning, government entitlements, lifestyle and news and information relevant to Australians over 50. Leon has worked in publishing for more than 25 years and is also a travel writer and editor, graphic designer and photographer.

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