Inflation’s attack on household costs hits everyone differently

Finding your average grocery shop is costing you more and more? These are the household staples that are hitting your hip pocket the hardest.

Lower-than-expected inflation figures this week are masking the big rises in key costs that are hurting households.

An analysis of almost 100 expense items buried in Australian Bureau of Statistics Consumer Price Index data has found that despite official inflation rising 6 per cent last financial year, many common costs climbed two or three times as much.

Gas prices surged 26 per cent in the 12 months to June 30, cheese climbed 16 per cent, milk 15 per cent and insurance 14 per cent, the statistics show.

Travel costs were also sharply higher but are expected to moderate in the year ahead, although electricity prices – up 13 per cent in 2022-23 – are expected to soar more than 20 per cent this financial year after huge price increases on July 1.

AMP chief economist Shane Oliver said price rises in some areas had been “very hefty”.

“Lower-income households tend to spend more on rent and power, so they may be more affected,” Dr Oliver said.

“And you have still got electricity price rises coming through from July. You are looking at another 20-30 per cent depending on what sort of deal you have with your provider.”

However, not every household cost is climbing. The Bureau of Statistics data reveals about 10 per cent of the categories it monitors experienced price falls in the 12-month period, with automotive fuel dropping 3.6 per cent, women’s clothing down 2.8 per cent, lamb falling 2.5 per cent and vegetables 2.2 per cent.

Dr Oliver said a variety of factors were behind the big differences in price moves.

“Last year a lot of goods were affected by pandemic-related supply shortages,” he said.

“Now some of those things are starting to correct and come back down because supply has returned and commodity prices have come off their highs.”

Dr Oliver said while the reducing rate of inflation was good news overall and reduced pressure on the Reserve Bank to raise interest rates, people were still experiencing a loss of their purchasing power as wages were not keeping up with prices.

“That won’t start to correct until wages growth exceeds inflation growth,” he said.

This might not happen until mid-2024, but “the gap between wages growth and costs is starting to narrow”.

The cost of travel surged in 2022-23, with international travel and accommodation up 23 per cent and domestic holiday prices rising 14 per cent as airlines and hotels played catch-up amid a post-Covid demand surge.

Dr Oliver said “everyone wanted to go at once” following the pandemic and “the price of those things went through the roof”.

“Now they are falling back as airlines put more planes on and hotels are back,” he said.

CommSec chief economist Craig James said supply and demand in holiday travel and accommodation was “moving back into balance”.

“Falling prices in that inflation component may be important over the next year,” he said.

KPMG chief economist Brendan Rynne said he expected annual inflation to fall to 4.3 per cent by the end of this year, and to 3 per cent – within the Reserve Bank of Australia’s target range – by the end of next year.

AMP chief economist Shane Oliver says wages are lagging inflation. Picture: supplied

“Inflation is the price today against the price it was 12 months ago,” Dr Rynne said.

Some costs had fallen and others had climbed only slightly, because “you are seeing a fall in the goods side of the economy”, he said.

“Twelve months ago there was disruption in goods production globally, largely due to Covid in China.

“What we are seeing in those goods markets now is that price has stabilised.

“But in services markets, like insurance, you are getting a lagging effect, predominantly driven by wages growth.”

As workers demanded higher wages to cover rising inflation, services businesses were putting up prices to cover that, creating a wage-price spiral, Dr Rynne said.

Originally published as Inflation’s attack on household costs hits everyone differently