Interest rates might remain at historically low levels but the cost of living continues to soar and the latest Australian Bureau of Statistics (ABS) figures reveal that age pensioners are copping the brunt of the rise.
The ABS last week released its latest Selected Living Cost Indexes, Australia report, covering the last quarter of 2021 and showing that all five Living Cost Indexes (LCIs) rose during the three-month period.
What are LCIs?
Since 2000, the ABS has measured the LCIs of four types of household. They are:
- Employee households – households whose principal source of income is from wages and salaries.
- Age pensioner households – households whose principal source of income is the Age or Veterans’ Affairs Pension.
- Other government transfer recipient households – households whose principal source of income is a government pension or benefit other than the Age Pension or Veterans’ Affairs Pension.
- Self-funded retiree households – households whose principal source of income is superannuation or property income and where the defined reference person is ‘retired’ (not in the labour force and over 55 years of age).
The indices of these four household types are known as Analytical Living Cost Indexes (ALCIs). In 2009, the Bureau added a fifth index, known as the Pensioner and Beneficiary Living Cost Index (PBLCI), which measures the effect of changes in prices on the out-of-pocket living expenses experienced by both age pensioner and other government transfer recipient households.
What has driven price increases?
In a media release accompanying the report last week, Head of Prices Statistics at the ABS, Michelle Marquardt, said: “Automotive fuel prices have increased over 30 per cent over the last 12 months and continue to be the largest contributor to higher living costs for Australian households.”
This has contributed to an increase across all household types.
Why have age pensioners been hit by the biggest increase?
At 3.4 per cent, the age pensioner household sub-group had the highest annual increase (December 2020 to December 2021), with food being the main factor. Food makes up a higher proportion age pensioner costs compared to the other sub-groups. The age pensioner household group also had the highest annual increase in housing costs.
Of the other sub-groups, the self-funded retiree LCI rose by 3.3 per cent, the pensioner and beneficiary LCI by 3.0 per cent, the other government transfer recipient LCI by 2.7 per cent and the employee LCI by 3.0 per cent.
Are SLCIs basically the same as the Consumer Price Index (CPI)?
No. although there are some links between the two. The CPI is more of a ‘catch-all’ measurement, which does not account for the various different household types and therefore does not always provide meaningful results for a particular household type. SLCIs were introduced to try and accurately identify cost-of-living changes in each of these areas.
The most notable difference between the measurements is exemplified by the fact that the CPI accounts for the purchase price of a new house but not interest rates, whereas SLCIs do the exact opposite.
What do these figures mean for the future?
While the ABS is not in the business of making forecasts, most economists believe that these LCI rises will force the Reserve Bank of Australia to lift the interest rate sooner rather than later. Previous suggestions that there would be no change to the cash rate before 2024 have been replaced by a forecast of a rate hike by as early as August this year.
What does this mean for you?
An increased cash rate could mean age pensioners and retired Australians may enjoy a funding boost in the form of income derived from interest rates.
Have you noticed significant price increases recently? How have they affected you? Why not share your experience in the comments section below?
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