Household costs that are gobbling up your money

man working out his household costs in the september 2022 retirement affordability index

Retirement Affordability Index September 2022

Inflation continued to grow rapidly in the September quarter. Over the past 12 months, prices increased by 6.1 per cent, largely driven by the same factors as in previous quarters: bottlenecks brought on by pandemic lockdowns, the war in Ukraine, heavy rain and flooding in key agricultural areas and the COVID zero policy being pursued in China.

The main drivers this quarter were transport, housing and food.

There are some emerging signs of good news, however. Since the end of the reporting period to June 2022, petrol prices have moderated, and container shipping rates have fallen back towards pre-pandemic levels. These are yet to flow through to the official statistics.

Main inflation driver

Transport continued to be the main driver of inflation – up 2.3 per cent for the quarter and 13.1 per cent for the past 12 months.

This was driven by automotive fuels (i.e., petrol, diesel etc.), which increased by 4.2 per cent for the quarter and 32.1 per cent for the 12 months. It includes the full effect of the drop in the fuel excise after the March Federal Budget.

The price of new cars also rose 1.2 per cent for the quarter (5.5 per cent for the 12 months) because of continued supply constraints increasing the cost of making and supplying new vehicles.

Housing increased 2.5 per cent for the quarter (9 per cent for the 12 months). This was driven mainly by new dwellings bought by owner-occupiers (i.e., the price of building a house excluding the price of the land). New dwellings purchased by owner-occupiers rose 5.6 per cent for the quarter (20.3 per cent for the 12 months).

Rents rose 0.7 per cent for the quarter – the biggest quarterly increase since 2014.

Food and non-alcoholic beverages increased 2 per cent for the quarter (5.9 per cent for the 12 months). This was mainly driven by fruit and vegetables (+5.8 per cent) because of heavy rainfall and flooding in key growing areas in NSW and Queensland, and increasing fertiliser costs.

Essential versus non-essential spending

The Australian Bureau of Statistics (ABS) splits price movements into essential and non-essential spending.

Essential spending, which includes such things as housing, clothing and groceries, is rising much faster than non-essential spending. While the average for all goods and services rose 6.1 per cent for the past 12 months, spending on essential goods and services rose 7.6 per cent.

This has a bigger effect on those on lower incomes, as they use a bigger proportion of their income to buy the essentials in life.

Which retirees were hit hardest?

Cash-strapped singles (retiree renters who receive an Age Pension) experienced the biggest increase (2.3 per cent for the quarter and 8.4 per cent for the year), followed by cash-strapped couples (2.2 per cent for the quarter and 8 per cent for the year).

Constrained singles (homeowners who receive an Age Pension) experienced an increase of 2 per cent for the quarter and 7.4 per cent for the year) and constrained couples 1.8 per cent for the quarter and 7.1 per cent for the year.

Well-off couples (self-funded homeowners) experienced lower increases – 1.7 per cent for the quarter and 6.9 per cent for the year, while well-off singles experienced increases of 1.8 per cent for the quarter and 6.9 per cent for the year.

Retirement Affordability Index September 2022

Well-off couplesConstrained couplesCash-strapped couplesWell-off singlesConstrained singlesCash-strapped singles
homeowners with private income
homeowners on Age Pension
Couples who rent on Age PensionSingle
homeowners with private income
homeowners on Age Pension
Singles who rent on Age Pension
As a percentage of expenditure13%13%30%15%20%37%
Domestic fuel & power45.4934.1636.0732.9029.4525.00
As a percentage of expenditure3%4%5%4%6%5%
Food & non-alcoholic beverages274.17193.11174.61137.7496.8286.77
As a percentage of expenditure17%21%22%15%19%17%
Alcoholic beverages & tobacco products59.1632.3052.5031.9118.9926.69
As a percentage of expenditure4%3%7%3%4%5%
Clothing and footwear31.3717.809.4120.879.057.46
As a percentage of expenditure2%2%1%2%2%1%
Household furnishings & equipment85.9137.2822.6847.0121.8317.41
As a percentage of expenditure5%4%3%5%4%3%
Household services & operation47.8833.8718.3043.2024.4112.97
As a percentage of expenditure3%4%2%5%5%3%
Medical & health care160.31114.2639.5692.0540.7624.12
As a percentage of expenditure10%12%5%10%8%5%
As a percentage of expenditure14%16%9%13%12%8%
As a percentage of expenditure2%3%3%4%3%3%
As a percentage of expenditure20%12%9%16%11%7%
As a percentage of expenditure0%0%0%0%0%0%
Personal care31.8019.3013.4119.8110.459.26
As a percentage of expenditure2%2%2%2%2%2%
Miscellaneous goods & services95.7451.6325.8258.1128.2817.62
As a percentage of expenditure6%6%3%6%5%4%
Total weekly expenditure$1622.95$938.21$795.05$927.20$518.96$501.58
Total monthly expenditure$7032.80$4065.59$3445.20$4017.88$2248.84$2173.52
Total annual expenditure$84,393.62$48,787.13$41,342.39$48,214.56$26,986.08$26,082.25

What area of spending has had the biggest effect on your budget? How are you preparing for more pain? Why not share your thoughts in the comments section below?

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™.

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