Inflation is falling but here’s why your costs are not following suit

living costs are still elevated

Inflation has continued to subside. The rate of inflation in the June quarter was 6 per cent, down from 7 per cent in the previous quarter,  but that doesn’t mean prices are falling. Far from it. It just means that prices are now increasing at a slower rate than they were previously.

The main drivers of inflation in the June quarter were rents, international travel and accommodation, and financial services.

Housing costs continued to increase, but rather than being driven by the increasing price of building a new house, which rose by 1 per cent in the quarter, they are increasingly being driven by rising rents, which rose 2.5 per cent for the quarter.

Travel and accommodation were mixed with the fall in domestic travel and accommodation (-7.2 per cent) largely offsetting the rise in international travel and accommodation (+6.2 per cent).

Financial services were driven by the rapidly rising cost of insurance (+5.3 per cent) due to the escalating costs of natural disasters caused by climate change.

Since the start of last year, transport had been a major driver of inflation but that has now reversed. Motor vehicles fell in price (-0.6 per cent) – the first quarterly drop since March 2020. Fuel costs also fell (-0.7 per cent) mainly because the price of diesel, which has risen faster than petrol, fell back to be much closer to the price of petrol.

Utilities also eased as electricity and gas prices fell back from recent highs.

YourLifeChoices Retirement Affordability Table August 2023

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 & power$49.43$37.12$39.19$35.75$32$27.16
As a percentage of expenditure3%4%5%4%6%5%
Food & non-alcoholic beverages$285.62$201.17$181.90$143.50$100.86$90.39
As a percentage of expenditure17%21%22%15%19%17%
Alcoholic beverages & tobacco products$61.22$33.39$54.28$32.99$19.62$27.57
As a percentage of expenditure4%3%7%3%4%5%
Clothing and footwear$31.53$17.90$9.46$20.97$9.10$7.50
As a percentage of expenditure2%2%1%2%2%1%
Household furnishings & equipment$86.6037.57$22.86$47.39$22$17.55
As a percentage of expenditure5%4%3%5%4%3%
Household services & operation$50.47$35.71$19.29$45.54$25.73$13.67
As a percentage of expenditure3%4%2%5%5%3%
Medical & health care$167.66$119.50$41.38$96.27$42.63$25.23
As a percentage of expenditure10%12%5%10%8%5%
As a percentage of expenditure14%15%9%13%12%8%
As a percentage of expenditure2%2%3%3%3%3%
As a percentage of expenditure20%12%9%16%11%7%
As a percentage of expenditure0%0%0%0%0%0%
Personal care$33.46$20.30$14.11$20.84$10.99$9.74
As a percentage of expenditure2%2%2%2%2%2%
Miscellaneous goods & services$102.39$55.22$27.61$62.15$30.25$18.84
As a percentage of expenditure6%6%3%6%6%4%
Total weekly expenditure$1690.38$976.55$827.72$965.36$540.72$522.30
Total monthly expenditure$7325.00$4231.72$3586.79$4183.24$2343.12$2263.28
Total annual expenditure$87,900.01$50,780.68$43,041.45$50,198.84$28,117.47$27,159.38
Source: The Australia Institute and YourLifeChoices.

How price rises affected you

The YourLifeChoices retirement cohorts all continued to experience big increases in their living costs.

The biggest rises were for cash-strapped couples and singles, who saw an increase in their living costs of 1 per cent for the quarter and 6.3 per cent for the year. The biggest drivers of that were rapidly increasing rents and food prices.

Constrained singles saw quarterly increases of 0.9 per cent for the quarter and 6.1 per cent for the year, while constrained couples saw 0.8 per cent for the quarter and 5.8 per cent for the year. The biggest drivers of those increased costs for the constrained cohorts were food and insurance.

Well-off couples and singles saw quarterly increases of 0.8 per cent and annual increases of 5.8 per cent. Like the constrained cohorts, their main cost-of-living increases were food and insurance.

If we look at the cohorts over a slightly longer period, we can see bigger differences in how inflation has affected them.

The most recent outbreak of inflation began at the end of 2021. If we look at the total increase in living costs for the period from December 2021 to June 2023, we can see that cash-strapped cohorts have faced the biggest increase, while well-off cohorts have seen the smallest increase. These are shown in the figures below.

Living cost changes December 2021-June 2023

Which cohort do you fit into? What did you notice about your living costs in the June quarter? Have you had to change your shopping behaviour? Share your thoughts in the comments section below.

Also read: Age Pension set to increase in September 2023. Here’s why …

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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  1. According to the Australian Bureau of Statistics, 66% of Australian households owned their own home with or without mortgage. 31%of households rented their home. If this is true, how accurate would it be to use rent as part of the Australian CPI and the inflationary calculation. As we, the boomer retirees, have been blamed for the accumulation of wealth, holding on with our big homes, I wonder how many retirees own their own homes and how many rent their home. As a senior, I gave up my car and use public transport. My education cost is nil because . My furniture dated back to the 1960s and is still in good condition. I have not travel since the outbreak of OCVID-19. My lifestyle in retirement has little resemblant to the indices here.

  2. The primary reason why prices are not falling is corporate price gouging.
    This in turn, inflates the executive bonuses enjoyed by the greedy.
    Time to reinstate the Prices Surveillance Act and name and shame those corporations making excessive profits.

  3. David makes a good point.
    Very diverse group of people.
    However quite a large group are those separated by illness in that they have to pay fees to keep there loved one in care, about $100,000 a year including rad but still have to try and live in the family home with all its. Expenses.
    Selling not really an option because of safety and friendship of neighbours.
    Can’t work because Of caring for your wife because Aged care homes are not prepared to fund more carers.
    However keeping super and living like a pauper is necessary in case they become I’ll.
    I guess the assets test which precludes a pension is not far away.yay

  4. All these studies use collected data and then attempt to say it is typical of the subject under study. But we are a very diverse bunch and many of us are way off whatever the authors have assumed as typical making these sorts of studies almost useless IMO.

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