Climate change and healthcare driving up your living costs

The rate of inflation continues to drop at a rapid rate. Inflation for the 12 months to December 2023 was 4.1 per cent – more than a full percentage point lower than for the 12 months to September when it was 5.4 per cent.

This marks the fourth consecutive quarter of lower annual inflation, which hit a peak of 7.8 per cent in the December 2022 quarter.

Inflation is expected to continue to fall as the supply shocks that set off the current inflationary spike wash out of the economy.

The main drivers of inflation for our retirement cohorts were housing, health, domestic travel, insurance and food.

Increasing costs of housing continued to cause financial pain, particularly for the cash-strapped cohorts who rent. While rents increased 0.9 per cent in the quarter, that was at least a lower increase than in previous quarters.

It was partially offset by a 15 per cent increase in the maximum rate for Commonwealth Rent Assistance (CRA) from 20 September 2023. Hopefully, this is the start of a slowdown in rent rises.

Private health insurance premiums were the main driver of increased health costs. They affected both the well-off and constrained cohorts the most. The pain was offset to some degree by a fall in the price of pharmaceutical products due to increased government subsidies on Pharmaceutical Benefits Scheme (PBS) medicines.

Domestic travel and accommodation increased in price by 3.9 per cent, driven by sporting events and the Christmas holiday period. That affected the well-off cohorts the most. The increases were partially offset by a 1.5 per cent fall in international travel and accommodation costs.

Insurance costs continued to increase (+3.8 per cent) across motor vehicle, house and home content insurance. Prices rose 16.2 per cent in the 12 months to the December 2023 quarter – the strongest annual rise since March 2001.

The costs are largely driven by an increasing number of climate-related disasters. All cohorts were affected and that is only likely to get worse as climate change affects more Australians. I expect this to become an increasingly difficult issue.

Food price increases continued to bite, though less so than in previous quarters. That impacted all cohorts. Bread and cereal products saw the biggest increases of 1.9 per cent.

Electricity prices rose 1.4 per cent in the December quarter, compared to a rise of 4.2 per cent in the September quarter. Over the past 12 months, electricity prices have increased 6.9 per cent, down from the increase of 14.5 per cent in the 12 months to September.

The introduction of Energy Bill Relief Fund rebates from July 2023 moderated the increase in electricity bills. Electricity prices have risen 5.7 per cent since the June 2023 quarter. Excluding the Energy Bill Relief rebates, prices would have increased 17.6 per cent over this period.

Offsetting those increases was a drop in automotive fuel prices. These continue to be volatile and, given the uncertainty in the Middle East and Russia/Ukraine, are likely to continue.

The increase in cost of living for our cohorts is also slowing. Cash-strapped couples and singles saw the biggest quarterly increase of 0.8 per cent. Half this increase is due to rising housing costs, mostly because of increasing rents. The other cohorts saw smaller quarterly increases with constrained singles increasing 0.6 per cent and constrained couples and well-off singles 0.5 per cent. The smallest increase was for well-off couples who saw quarterly prices increase 0.4 per cent.

YourLifeChoices Retirement Affordability Table February 2024

COUPLESSINGLES
Constrained couplesCash-strapped couplesWell-off singlesConstrained singlesCash-strapped singles
Couple
homeowners with private income
Couple
homeowners on Age Pension
Couples who rent on Age PensionSingle
homeowners with private income
Single
homeowners on Age Pension
Singles who rent on Age Pension
Housing225.89133.51252.86151.78112.02199.2
As a percentage of expenditure13%13%30%15%20%37%
Domestic fuel & power51.538.6840.8337.2533.3428.3
As a percentage of expenditure3%4%5%4%6%5%
Food & non-alcoholic beverages288.93203.5184.01145.16102.0391.44
As a percentage of expenditure17%20%22%15%19%17%
Alcoholic beverages & tobacco products62.8734.9756.8834.5420.7329.29
As a percentage of expenditure4%4%7%4%4%5%
Clothing and footwear31.8218.069.5521.179.187.57
As a percentage of expenditure2%2%1%2%2%1%
Household furnishings & equipment84.4936.6622.346.2321.4717.12
As a percentage of expenditure5%4%3%5%4%3%
Household services & operation49.0434.718.7444.252513.29
As a percentage of expenditure3%3%2%5%5%2%
Medical & healthcare169.89121.0941.9397.5543.225.56
As a percentage of expenditure10%12%5%10%8%5%
Transport238.57154.8773.64126.3864.4543.47
As a percentage of expenditure14%16%9%13%12%8%
Communication35.1924.9426.9834.0517.5813.72
As a percentage of expenditure2%3%3%3%3%3%
Recreation337.76114.774.58157.3159.1835.71
As a percentage of expenditure20%12%9%16%11%7%
Education0.670.2500.150.130.01
As a percentage of expenditure0%0%0%0%0%0%
Personal care33.8620.5514.2821.0911.139.86
As a percentage of expenditure2%2%2%2%2%2%
Miscellaneous goods & services105.3156.7928.463.9231.1119.38
As a percentage of expenditure6%6%3%7%6%4%
Total weekly expenditure1715.8993.25844.98980.82550.55533.93
Total monthly expenditure7435.134304.13661.584250.242385.722313.69
Total annual expenditure89,221.6051,649.2143,939.0151,002.8728,628.6827,764.28
Est. expenditure after Dec quarter 202286,25749,71242,07849,23227,51526,542
Source: The Australia Institute and YourLifeChoices.

Have you noticed an easing in living costs? Are you happy with the various inquiries into supermarket prices? Share your thoughts in the comments section below.

Also read: CPI informs many government decisions, but is it still accurate?

Written by Matt Grudnoff

Senior economist at the Australia Institute, Matt is a regular contributor to YourLifeChoices and has extensive knowledge on retirement incomes, taxation and tax concessions, the federal Budget, poverty and inequality, free trade agreements, housing affordability, energy economics and climate change. He worked at the Australian Bureau of Statistics and the Department of Climate Change. Matt is the brains behind Australia's most accurate cost-of-retirement table, the YourLifeChoices Retirement Affordability Index™.

14 Comments

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  1. I don’t know how they come up with these figures because I know we are spending around 20% more for the same groceries than we were a year ago. Some items are up over 50% and I have made a submission to the enquiry noting that and supplying examples.
    Home and contents insurance here has been rising at about 20% a year for the past ten years and became unaffordable several years ago when I dropped it. It was about $500 pa ten years ago and a similar policy would cost about $5,000 pa today.
    IMO the CPI figures are nonsense.

    • 20% more? Wow, ours increased 8.8% last year over 2022.
      House/Contents Insurance – must have something to do with your rating, ours for the last four years has been, 517, 521, 558 and 664. So the only large increase was last year, 19%.

  2. these monthly costs are low for most items. According to the cost for a single person, food and non-alcoholic beverages is only at $145.16 a month- about $4.80 a day. This would be a starvation diet.

    Even if you bought the cheapest red meat or chicken, one meal alone would cost that amount.
    A pack of 6 sausages, probably the cheapest form of meat costs around $10.00- maybe enough for 3 meals ($3.30 a meal). While the current cost of vegetables is quite reasonable and about as low as they get in the year, to have a meal with a 200g of protein like beef, or chicken plus potatoes and three small portions of other vegetables would add at least another $2 or $3. For one meal you have exceeded the daily estimated cost. This means you would have nothing else to eat or drink for 24 hours.
    You wouldn’t be drinking much at the estimated cost of just over $1 a day.
    I would also like to know where housing costs only $151.00 a week.
    It also shows how poorly Age Pensioners are considering the full fortnightly pension rate for singles- they do basically starve.

    • On the other hand, a couple with private retirement income spends nearly $90K a year? Wow! I can’t imagine how, unless they take lots of very expensive holidays or dine in lavish restaurants every night! We consider we live quite well on less than $60K a year, and that includes a lot of home improvements being done at the moment. We do worry about the soaring insurance, electricity and petrol costs, and lately food costs have really soared. The inflation figures quoted in the article are not accurate for food, nor for several other essentials. And that’s a problem for pensioners. It’s all very well to say the CPI went up by n%, but that calculation includes things pensioners don’t buy or rarely buy like education, childcare, new furniture and appliances. The increase in pensioners’ living costs is always a lot higher than the CPI.

  3. Whils everyone talks about inflation going down, it is not an accurate indication, because the items on the inflation list of pricing do not match the spending of the average person, also economists fail to inform people that inflation is a compounding item, each time it goes up it is based on an already higher price, so you are paying more in dollars on a price that is more than it was in real terms. People on retirement fixed incomes are really worse off, and even pensioners have to wait 6 months for an increase, while prices are rising every day. Insurance companies increase their prices to everyone to cover people who live in flood prone areas. Insurance premiums should be based on true risk, not averaged over the whole populated areas.

  4. These figures are certainly not relative to Central/North Qld. Insurance Premiums (when you can get it – most won’t insure you up here because of cyclones) my insurance is $4,500 a year, my rates per year are just over $4000 and electricity costs are also high and we have no choice of supplier – Ergon have the monopoly so no competition! Food has more than doubled in price here too and rents have skyrocketed with the lowest vacancy rates ever seen. Everyone up here is struggling and the pension doesn’t come close to giving a reasonable standard of living for anyone. Luckily I have solar and a little in super to help me through but alot don’t. Something needs to be done to pull these insurance companies and food retailers into line and then of course Ergon need to let go of their monopoly so that we can get a fair deal like everyone else in this country. Rant over!

  5. I guess because my wife’s Agedcare home is $100 k a year and I live in our family home I am not normal but I Still have to pay to keep a house and car maintained.
    insurance ,car maintenance, fuel,,electricity,water,gas,
    Tradies to fix garden,retic,gutters,etc cost $120 to $160.00 an hour.
    Appliance replacements,IT replacements,phone and data accounts.
    Groceries are unbelievable.
    Meat is simply unaffordable.
    I don’t even go to that counter.
    Many of the above have gone up 100%
    Imagine when the wage rises filter thru.
    I am a self funded retiree but a small pension is not far away.
    I am not whinging but I find the costs as described in the article not realistic.
    Cheers

  6. The retirement affordability table has a discrepancy in the total annual expense for Couple howeowners on Age Pension
    It shows an annual expenditure of $49,712.50 but the annual aged pension for a couple is $42988
    What are the assumptions behind these figures with regard to income and categories would be good to know that also
    Thanks
    Wired

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