Latest inflation figures show self-funded retirees hit hardest

inflation has hit retirees hard

Inflation grew by 1.9 per cent in the December quarter, with the annual rate now 7.8 per cent – the highest since 1990 – but there are signs the rate may have reached its peak.

The Reserve Bank and the Treasury have both predicted that inflation would peak this quarter and there are some signs that we have indeed reached the top – good news for retirees given the table below which shows the increase in weekly, monthly and annual income now required for YourLifeChoices’ six cohorts.

The main drivers of inflation were holiday travel, both domestic and international, electricity, and housing.

With COVID lockdowns now a thing of the past, people were keen to get out and travel more over the Christmas period. But airlines, in particular, are having trouble meeting the increase in demand. Domestic holiday travel and accommodation increased 13.3 per cent for the quarter, with international holiday travel and accommodation increasing 7.6 per cent.

Read: Why inflation hits retirement income hardest

The other big driver of inflation was housing, including electricity, rents and the building of new homes.

Electricity prices rose 8.6 per cent during the quarter. This was largely because electricity rebates in Western Australia and the ACT ended. The West Australian government had been giving a $400 electricity credit to each household and the ACT had a $50 rebate for concession card holders. Conversely, Queensland and Tasmania have introduced rebates.

Rents increased 1.2 per cent for the quarter and 4 per cent for the year and affected all capital cities. That is the fastest growth in the past 10 years and driven by low vacancy rates.

The cost of building a new home increased 1.7 per cent. While costs are still increasing, the rate of increase is slowing as bottlenecks in building supplies ease. The reductions in home builder grants, which were put in place during the pandemic recession, also added to the cost of building a new home.

Read: Analysts optimistic about super returns in 2023

Fuelling hopes that inflation may have peaked, some areas that had previously been increasing in price quite rapidly have now moderated.

Fuel prices rose in October (+7.1 per cent) and November (+5.6 per cent) but fell in December (-8.1 per cent). Vegetables, which had previously increased quite rapidly, fell in price by 10.2 per cent due to the easing of unfavourable weather conditions.

We also saw a change in discretionary and non-discretionary inflation.

Previously, non-discretionary inflation, which includes essential items such as housing and food, was increasing much faster than discretionary inflation. But that reversed in the December quarter because the main driver of inflation was holiday travel and accommodation, which the Australian Bureau of Statistics classifies as discretionary.

Read: The wealth-destroying impact of inflation

Discretionary inflation was 2.6 per cent for the quarter, higher than non-discretionary inflation which was 1.3 per cent. However, for the past year, non-discretionary inflation is still higher (8.4 per cent) than discretionary inflation (7.1 per cent).

The fact that the main driver of inflation was holiday travel and accommodation reversed the cost-of-living impacts on our six retiree cohorts: well-off couples and singles (self-funded homeowners), constrained couples and singles (homeowners who receive a part or full Age Pension) and cash-strapped couples and singles (renters who receive and Age Pension).

Well-off couples (2.2 per cent) and singles (2.1 per cent), who normally see the smallest increase in living costs, experienced the biggest increase this quarter. That is because they spend a larger proportion of their income on recreation, which includes travel and accommodation.

Constrained singles (2 per cent) and couples (1.9 per cent) faced the next biggest increase in living costs.

Cash-strapped couples and singles (both 1.8 per cent) faced the smallest increase.

While the quarter might have seen living costs for our cohorts reversed, when looking at the past year, cash-strapped couples and singles still faced the biggest increase in prices.

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 and power$47.53$35.69$37.68$34.37$30.77$26.12
As a percentage of expenditure3%4%5%4%6%5%
Food and non-alcoholic beverages$276.60$194.81$176.15$138.96$97.67$87.53
As a percentage of expenditure17%20%22%15%18%17%
Alcoholic beverages and tobacco products$59.77$32.69$53.14$32.29$19.23$27.04
As a percentage of expenditure4%3%7%3%4%5%
Clothing and footwear$32.18$18.26$9.66$21.41$9.28$7.66
As a percentage of expenditure2%2%1%2%2%2%
Household furnishings and equipment$86.42$37.49$22.81$47.29$21.96$17.51
As a percentage of expenditure5%4%3%5%4%3%
Household services and operation$49.35$34.91$18.86$44.52$25.16$13.37
As a percentage of expenditure3%4%2%5%5%3%
Medical and healthcare$161.59$115.17$39.88$92.78$41.09$24.31
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%17%11%7%
As a percentage of expenditure0%0%0%0%0%0%
Personal care$32.36$19.64$13.65$20.16$10.63$9.42
As a percentage of expenditure2%2%2%2%2%2%
Miscellaneous goods and services$97.88$52.78$26.40$59.41$28.91$18.01
As a percentage of expenditure6%6%3%6%5%4%
Total weekly expenditure$1658.80$956.01$809.21$946.77$529.13$510.43
Total monthly expenditure$7188.15$4142.71$3506.56$4102.67$2292.90$2211.85
Total annual expenditure$86,257.77$49,712.50$42,078.68$49,232.08$27,514.77$26,542.24
Source: YourLifeChoices and The Australia Institute

What costs were toughest for you in the December quarter? Have you noticed that some living costs are easing? Why not share your observations 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™.

One Comment

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  1. Must be in some odd cohort. Household services and operation (assuming this includes insurance, rates, repairs and utilities has virtually grown by over 130%. Medical costs (if you can get services), has increased by !50%. Being a homeowner with a mortgage has seen increases of 100%. Communications have sourced 130%.
    Even if you cut back on the expenditure which is discretionary, and shift from private vehicle use to public transport, the overall increase in household costs for a couple with their own home has ballooned.

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