The spike in annual cost of living has drastically hit the Employees’ household, being the highest on record ever. Ongoing increases in mortgage interest being the primary contributing factor leaving the average household with nothing left over for other expenses.
What causes this phenomenon exactly?
The ABS publish several measures that can assist in understanding changes in the cost of living:
- The Consumer Price Index (CPI)—this measures changes in the price of a basket of goods and services over time, designed to be representative of average household expenditure. Notably, it is calculated using price changes within capital cities.
- Living Cost Indexes—these measure the impact changes in prices have on expenditure on goods and services for a range of different household types (employees, age pensioners, other government transfer recipients and self-funded retiree households), determined with reference to their actual spending patterns.
ABS Head of Prices statistics, Michelle Marquardt, said, “Living costs for Employee households recorded the largest annual rise of all household types, at 9.6 per cent; the largest increase since this (series) started in 1999.”
The living cost indexes (LCIs) indicate ‘Employee households’ are drowning in Mortgage interest charges which have spiked at 78.9 per cent. Last December quarter, Mortgage interest charges are up from the previous annual rise, where it was 61.3 per cent.
Data sourced from Australian Bureau of Statistics
Living costs are at their record high since the Australian Bureau of Statistics began calculating them. Over the past year, all living cost indexes have increased between 7.1 per cent and 9.6 per cent for all households.
Further ABS data that was calculated through bank transactions, indicated household spending increased 11.8 per cent over an annual basis. Within this non-discretionary household spending, otherwise known as mandatory expenses, rose 17.5 per cent, driven by spending on transport services and food.
Living cost indexes also take account of data on mortgage interest charges in which the consumer price index does not measure but uses the cost of building a new dwelling instead.
“Living costs for all household types rose more than the CPI,” Ms Marquardt said.
Recent spikes in the cost of living indexes were primarily driven by cost increases in mortgage interest, transport and food. Mortgage interest charges make up a larger proportion of annual spending for Employee households, in which the cost of living crisis has partially impacted them.
The interest rate on mortgage has increased since the Reserve Bank of Australia lifted the official cash rate to 3.85 per cent on 3 May 2023, causing further stress in the cost of living crisis for Employee households.
What does the cash rate mean?
- The cash rate is a figure set by the Reserve Bank of Australia (RBA), representing the interest that banks and lenders have to pay on the money they borrow. The RBA itself describes the cash rate as the “overnight money market interest rate”. The reason for this is that banks frequently lend money to each other and process these transfers overnight, and the cash rate is the amount of interest that banks have to pay to borrow money in these transactions.
Since May 2022, the Reserve Bank’s official cash rate has spiked from 0.10% to 3.85% and mortgage repayments have escalated.
In a statement, the RBA governor Phillip Lowe said. “Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today.”
The cash rate increased after ABS revealed the CPI rose another 1.4 per cent in the last quarter, from December to March.
The ACTU claims the Reserve Bank of Australia has yet again made another wrong call and that they need to stop damaging workers with interest rate increases.
ACTU Secretary Sally McManus slammed the move as “a bad decision,” saying it would increase the already immense pressure on working people.
“Ordinary Australians are struggling to pay the bills…mortgages and rents have gone up an extraordinary amount,” McManus said.
Investigating Inflation by UOWTV
With reporting from Jane Drew and Isla Evans.