20th Apr 2018
FONT SIZE: A+ A-
The costs that hurt you the most in 2017
Matt Grudnoff: The costs that cut the deepest

Senior economist with The Australia Institute Matt Grudnoff looks at the bigger picture in cost-of-living increases for our tribes. Price rises in the things we buy are common to all households but will affect different groups in different ways. Costs may be easily absorbed by some YourLifeChoices tribes, while other tribes may struggle to make ends meet.

The March issue of the Retirement Affordability Index™ applies the Consumer Price Index (CPI) figures from the December quarter to assess the broader impact on the six retirement tribes: Affluent Couples, Constrained Couples, Cash-strapped Couples, Affluent Singles, Constrained Singles and Cash-strapped Singles.

In recent issues, we have focused on the impact of quarterly price rises rather than look at the bigger picture. Because the latest figures complete the 2017 calendar year, it is an ideal time to look at what happened to each tribe across the 12-month period – the prices that went up in 2017 and those that went down. Most importantly, we will assess how these changes in prices affected our different tribes in different ways.

One way to do this is to look at price rises as a percentage of expenditure in key categories.

For example, Constrained Couples experienced an overall 1.6 per cent rise in their cost of living. Health had the biggest impact, accounting for 0.5 per cent of the 1.6 per cent rise.

If we look at the top four contributors for each of the tribes – medical and healthcare, transport, housing, and domestic fuel and power – we discover that the same categories are common to each. But there are big differences in how much each category affected each tribe’s bottom line.

The overall difference varied from 1.3 per cent to 1.8 per cent. The accompanying table shows the impact on each tribe. Also included are significant price decreases when these falls were 0.2 per cent or greater for the year.

Let’s now look at each of the four categories as well as the offsetting categories.

The hot topic, when it came to price rises in 2017, was energy. Almost all of the electricity price increase was in the September quarter (July, August and September). The rises were debated, criticised and defended. The topic was only knocked out of the news by an even bigger discussion – the nationalities of our parliamentary representatives.

The impact of the electricity and gas price rises was different for each tribe. They were most keenly felt by Cash-strapped Singles and Couples, that is, retirees who rent. The energy rises contributed half a per cent to each. These two tribes were more heavily affected because of their lower income compared with other tribes and because electricity is a daily essential.

Another big price increase in 2017, and one which received surprisingly little attention, was the jump in transport costs driven mainly by rising petrol prices. This was most obvious at the start and end of the year. Petrol price increases usually receive plenty of media attention, but for some reason they flew under the radar this year.

Transport price increases had a big impact on all tribes but had the biggest effect on Constrained Couples. If petrol prices stay high – or increase further – then expect them to gain more attention. Another price increase that continued to climb at a steady but relentless pace was housing. Unlike electricity, costs associated with housing were not isolated to one or two quarters. Rather, they rose consistently each and every quarter, and when we look at the increases across the year, we can see they had an impact on all tribes.

However, by far the biggest impact was on Cash-strapped Singles. This tribe felt a massive 0.8 per cent increase for the year – the largest for any tribe. Why? Because of the amount this tribe spends on rent as a proportion of income.

The second biggest impact was on Cash-strapped Couples, who experienced a 0.6 per cent rise, again because of the proportion of income spent on rent.

The fourth key category responsible for cost-of-living increases was health.

The most affected tribe was Constrained Couples, many of whom have private health insurance. Health was also the biggest contributor to the rise in cost of living for the Affluent tribes. Affluent tribes spend a far larger proportion of their income on health than the other tribes, considerably more than the Cash-strapped tribes.

There were price drops in a number of categories over the year. The Affluent tribes spent enough in these categories so that it decreased their cost of living by 0.2 per cent. Household furnishings had a significant impact on both Affluent Couples and Singles. This was mainly driven by falls in the price of computing and technology products.

Communication also had a positive impact on Affluent Singles, decreasing their cost of living by 0.2 per cent. All the other tribes experienced much smaller drops.

As you can see, from the same price rises we get very different cost-of-living increases – all because our tribes have different spending in different areas.

Overall, the Affluent tribes saw increases of 1.3 and 1.4 per cent respectively in their total spending. The Constrained tribes saw increases of 1.6 per cent and the Cash-strapped tribes increases of 1.6 and 1.8 per cent in their total spending.

Electricity price rises were important and petrol price increases were the sleeper issue. But the category that had the biggest effect was the cost of housing.

The other key contributing factor was that the Affluent tribes consumed more of the things that actually went down in price. This limited the impact of the increase in their cost of living.

RELATED ARTICLES

    All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

    To make a comment, please register or login
    TREBOR
    22nd Apr 2018
    10:39am
    1.3 to 1.8% - could've fooled me with power prices and fuel prices.... were the dots inserted accidentally?
    GeorgeM
    22nd Apr 2018
    11:27pm
    Good point.
    Also, can't see why Renters should spend more on Electricity than Homeowners. Is it because they get that extra hand-out for renters?

    Ideal solution is to get rid of all this analyses - as it doesn't lead to sector by sector different Age Pensions, and simply give all Universal Pension. Then each can work out how much to spend, how much to earn (without Govt cutting back pension), and how much to save. Freedom for all to do whatever you want with your life, even downsize, without Govt looking over your shoulder / breathing down your neck to decide how much pension to cut!
    patti
    22nd Apr 2018
    11:42am
    Any money left over for me seems to be going into home repairs lately. In some ways I would rather rent, then the landlord would pick up the cost. I could not managed were I still paying a mortgage, and other associated costs of home ownership. But am glad I don't have to deal with the rental market
    Sundays
    22nd Apr 2018
    7:52pm
    Have you looked into the free repairs available for pensioners in your local area. You pay for materials but labour is free. They will do electrical, plumbing and other repairs deemed to be urgent or to improve safety. Ask the Council, or community organisations. A friend recently had washers changed, locks put in and fly screens fixed.
    KB
    20th Jun 2018
    1:39pm
    Patti do you have neighbours who are skilled in the area of repairs such as washers? My mother had a retired neighbour who helped her out with simple tap repairs.I rent and had a lot of repair jobs done paid by the landlord so glad that I have not the expense of repairs to cover. A handyman can replace tap washers and less expensive than a plumber
    Magic Touch
    22nd Apr 2018
    11:59am
    Trebor under this goverment we had to leave with it. They don,t know that pensioner, retirees had no income from work. Because they can,t get work and not working so income will be from investment property/shares, bank deposit interest. But how many are so lucky to have all this in their golden age. For investment property you were hit by high council rate plus land tax, shares price drop less dividend and bank deposit interest low. Go to other country to live on the old age goverment stop your payment, the only way it,s go to the grave when you are sick and run out of money.
    TREBOR
    22nd Apr 2018
    1:34pm
    Seems that way - exposed on the side of Mt Kosciusko in Winter when your money runs out... kinda like being homeless and living under the bridge, eh?

    I'm doing some checking - I can fly to Spain for $850 return, buy a used diesel BMW lux for under 1000 euros, and travel about... there are even countries where you can still buy cheap housing, and I mean cheap.

    Might be spending half the year here aboard a large boat and the rest of the year offshore....

    Now - let's see about that utilities allowance and six weeks..... also rental assistance for the mooring with power and water....
    TREBOR
    22nd Apr 2018
    1:37pm
    What if I fly out and fly back and then fly out again every six weeks? Who's going to pay for my utilities while I'm gone? Malcolm? Billy? Fat Hank?

    Still up for $300 a quarter EACH for access to power and water - let alone gas which is in bottles.

    Rather be on tank water (makes better beer and coffee anyway) back on the property and on stand-alone power.
    Old Man
    22nd Apr 2018
    2:37pm
    What we need is a list of those items which affect us and are not included in the CPI. I believe that fuel, which affects all transport costs, is not included. When assessing the costs associated with fuel, is there an average across the nation or just capital cities? In our area, fuel is consistently 20¢/litre higher than the nearest capital city.
    TREBOR
    22nd Apr 2018
    3:33pm
    Yes - fuel has a flow-on effect across the board, as do power cost rises, so the rises are not just as simple as $2 +3% = $2.06.

    then your business has to raise its cost to cover the extra pay required for staff plus freight, plus maybe a little hedge against further rises before the next time shelf prices can reasonably be raised.

    One good indicator is beer at a club - you always notice signs saying that the price of beer will rise by x% or yy cents - hence the CPI - Cost of Piss Index. At least that's an honest one since the rest are hidden and clubs try to keep their members aware of the true situation.

    Of course - when you pay tolls and such - the price goes up with fuel costs to cover the extra wages and such to the toll gatherers etc.... wages all round go up to meet, so all the same problems still exist as before the rise - time for a cost rise freeze.. then we can negotiate a steady downturn in costs and a steady downturn in wage levels..... to meet.

    The other way so beloved of the 'right' propaganda machine - that somehow wage rises after the event are causing cost rises - has not worked and never will. Wages trail cost rises by at least six months- that is roughly the time between possible lodging of a CPI claim.... or is it twelve months? Twelve full months during which prices run riot - and then the media will tell you that wages are killing the country....

    Man - we are going to need a bigger and fully automated guillotine....
    Magic Touch
    22nd Apr 2018
    4:04pm
    Trebor you don,t need a big guillotine some russian gas it,s quicker. OM duty free for you to buy a ev than you don,t need to run on fuel and you can run on electricity with PCC.
    Prices go up means our dollar value had gone down and this hank can not keep the value of our dollar so put more tax on us by increase fuel,gas, electricity & water.
    MICK
    22nd Apr 2018
    4:25pm
    And government charges and insurance costs. With tax cuts for the wealthy expect more pain as well as being told we do not have have inflation. We do and it is significant.
    Magic Touch
    23rd Apr 2018
    10:42am
    Mick you are very right as I can,t mansion so much, thanks.
    Sunday you only look on one side of the coin, today people like to take advantage of those who try to help them.I use to fix up those handyman work but I can tell you that the church going people are the worse of all. They call you at work and ask you to come and do the fixing fot them because you don,t charge any money. They don,t know that you can only help them in the free time. Some even pick those electricail appliance, tools,lawan mover and so from the road side hard rubbish collection. To you to fix and go and sell it in the trush & tteasure. Once I fine out I said to myself I am not going to help them any more, I said that it.....


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles