This week on Money & Investing, Mitch Olarenshaw and I examine why Australia’s official inflation rate may not reflect the real increase in everyday living costs, from food and electricity to property prices.
1. The Gap Between CPI and Real Costs
The official CPI figure can look manageable, but household expenses can tell a different story. Food, energy and other essential costs have increased significantly beyond what inflation alone would suggest.
2. Rising Energy Costs
Electricity provides a clear example. A standard kilowatt-hour cost around 11 cents in 2000. Adjusted for inflation, it would be about 22 cents today, compared with roughly 34 cents. Higher energy costs also affect manufacturing, food production and storage.
3. The Property Price Problem
Housing shows an even larger gap. An average Australian property was worth around $200,000 in 2000. After adjusting for inflation, that would be close to $400,000 today. Instead, average property prices are around $1.1 million in the figures discussed.
4. Cost-Push Inflation
Higher wages and higher operating costs can feed into product prices. Businesses facing increased labour and energy costs may need to charge more, while workers need higher wages to keep up with rising living expenses. This can create a cycle of rising costs and prices.
5. Protecting Your Purchasing Power
If your personal cost of living is rising faster than the official inflation rate, keeping all your money in cash may not be enough. The discussion highlights property and income-producing investments as potential ways to help protect purchasing power over time.
6. Why Saving Alone May Not Be Enough
A term deposit paying around 5% can appear attractive, but the return needs to be compared with the actual increase in your living costs. Investing can provide an opportunity to build wealth and potentially stay ahead of inflation.
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The information provided is general in nature and should not be relied upon as personal financial advice. You should consider your own circumstances and conduct your own research before making any investment decisions. Where appropriate, seek advice from a suitably qualified and licensed financial adviser.
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The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.