Terry McCrann: CPI inflation figures are nonsense
Official figures tell us inflation is all-but non-existent, but in the real world — especially for one big group of Australians — nothing could be further from the truth, says Terry McCrann.
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Do you believe – indeed, are you certain – that the official CPI inflation figures that come out every three months telling us, assuring us, that inflation is all-but non-existent, must be calculated on at least another planet if not in another universe?
You know they are nonsense because ‘every time’ you go to the supermarket, any number of things are costing more and your total bill always seems to get bigger – to say nothing of the ever-spiralling costs of the ‘big spends’ like electricity, gas, rent/mortgage, rates and health insurance.
Well, some research from the Australian Bureau of Statistics provides some – but only, some – comfort for older Australians, whether on the pension or trying to self-fund their retirement (in an era of zero interest rates), and for other social welfare recipients like the jobless.
That is to say, anyone who isn’t protected against rising prices by regular wage and salary increases. That is to say, even for them, only partially protected, because even wage and salary earners are screwed over thanks to the insidious secret tax hikes from bracket creep.
What the ABS has done is to split inflation into two categories: what it calls ‘discretionary inflation’ and ‘non-discretionary inflation’ – and to calculate what’s happened to them in the period since 2012.
They are what they say they are.
Non-discretionary are goods and services you more or less have to buy because they service a basic need like food, shelter, healthcare.
Discretionary are goods and services you can, broadly, choose to buy or not to buy like meals, alcohol (and tobacco) and holidays.
Now, I’ve long argued that the CPI grossly understates the real inflation for especially older Australians, as they’ve been smashed by a two-way squeeze.
On the one hand, they’ve stopped buying or at least reduced their buying of so many of the things that have plunged and keep plunging in price – especially around consumer goods like TVs and fridges, and communications like smartphones and broadband.
And on the other, they’ve had to dramatically increase their spending on especially healthcare, which just keeps spiralling in price in mid-to-high single digits every year, along with the costs of power and heating/cooling.
Something similar is the case also for those on social welfare, although the specifics might differ.
Well, the ‘bad’ – statement of the bleeding obvious – news from the ABS is that non-discretionary inflation has been running consistently higher than discretionary inflation and so also the CPI overall.
Over the eight years to 2019, the CPI – to remind, what is supposed to be the overall measure of consumer inflation – rose by 14 per cent in total.
It is worth noting, and indeed emphasising, even such supposedly very low to (in the eyes of the RBA) too-low inflation, still ends up devaluing your money.
Very simply, including but also beyond all those cheaper fridges and TVs, the ‘representative basket’ of goods and services that $10,000 would buy in 2012, you needed $11,400 to buy in 2020.
Now, to some, that mightn’t seem like much, but if this ‘low to non-existent’ inflation persists, it will still mean that by 2027 you will need $13,000 to buy what $10,000 bought in 2012.
As Winston Churchill could have said: “some non-existent inflation” – the sort that can ‘non-exist’ someone on a fixed income into the poorhouse if they live long enough.
Well, the ‘good news’ from the ABS analysis, such as it is, is that the ‘non-discretionary’ inflation – the variety that can really hurt older people and those generally on fixed incomes – actually hasn’t been much higher than either the discretionary inflation or CPI inflation generally.
Over the eight years in total, CPI was up 14 per cent; non-discretionary was up 14.8 per cent; discretionary was up 12.9 per cent.
But, and it is a very big and actually humungous but, one single product delivered half – yes, half – of all the discretionary inflation.
That was tobacco – essentially, cigarettes. And the tobacco inflation was all the product of the, literally, punishing tax increases every year.
The ABS calculated that discretionary inflation excluding tobacco was actually only 6.4 per cent over the eight years, well under 1 per cent a year.
Non-smokers had a very good – essentially inflation-free – decade, at least so far as their discretionary spending was concerned.
But if you were an ‘oldie’ or on the dole and were still hooked, you got well and truly screwed over with spiralling prices. I don’t have the data but it might have been better to have been ‘hooked’ on other substances.
Now, the ABS does also calculate inflation more specifically in relation to “out – of – pocket living expenses of selected household types, such as old-aged pensioners, other pensioners; self-funded retirees, singles under 40; families under 40; etc.”
While it’s not comprehensive, it confirms exactly that huge divide – ‘oldies’ and especially pensioners are getting hit by real inflation much higher than the CPI would suggest.
It’s all bad enough with a CPI running around 1.5 per cent a year; it would be much worse if the CPI jumped to 3 per cent; to say nothing of a CPI at 4 or 5 per cent or higher.
The RBA is intent on getting the CPI ‘clearly and sustainably’ into the 2-3 per cent range – partly because that’s what it has been ordered/mandated by political government to go; partly because it thinks that’s the prerequisite to getting the jobless rate down.
It needs to think carefully; monitor and assess even more carefully; and most of all deliver very carefully.
Originally published as Terry McCrann: CPI inflation figures are nonsense