Western Australia may be beating the national average for headline inflation, but that doesn’t necessarily mean every household is better off in terms of the cost of living.
The latest Australian Bureau of Statistics (ABS) Selected Living Cost Indexes make this distinction clear. While living costs rose for every household type in the June quarter, the size and nature of the increase varied significantly.
Employee households – defined as households where wages and salaries are the primary source of total income – recorded the largest quarterly increase in their living costs, rising by 1.5 per cent.
By contrast, age pensioner households – defined as households where the main source of income comes from the government age pension or a Department of Veterans’ Affairs (DVA) service pension – recorded the smallest quarterly increase at just 0.5 per cent.
The figures for the full year, however, tell a very different story.
Age pensioners recorded the fastest overall increase in living costs, at 4.7 per cent, compared with just 3.7 per cent for employee households.
So, what’s driving the difference?
For employee households, the leading pressure is elevated interest rates. Mortgage interest charges rose 8.2 per cent in the June quarter, reflecting banks passing on the Reserve Bank of Australia’s recent rate hikes.
The impact is pronounced as mortgage interest carries a larger expenditure weight – the importance of a good or service in total household spending – for employee households.
For pensioners, the story is less about servicing mortgage debts and more about persistent increases across everyday expenses.
Food, housing and other essentials continue to rise despite an easing in the latest quarterly inflation figure.
Perth’s annual consumer price index inflation was 3.7 per cent in June, slightly behind the national 3.8 per cent and below Sydney, Brisbane, Adelaide and Hobart. That is welcome news.
But this headline inflation number can obscure these differences, and some of the cost pressures on households remain substantial.
Nationally, housing costs rose 6.8 per cent over the year to June, while food costs rose 3.3 per cent.
Government pensions are uprated each March and September by the higher of CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI) during the relevant six-month period.
For the six months to June, the PBLCI rose 3.2 per cent, compared with a 2 per cent increase in the CPI. That means the September indexation should be driven by the PBLCI rather than headline CPI.
The lesson for policymakers is clear: there is no single cost-of-living crisis and there should be no one-size-fits-all policy response.
For mortgage holders, the priority is easing the pressure from housing costs and ensuring interest rate relief to households as monetary policy tightens.
For pensioners and other vulnerable households, the focus must be on the essentials that continue to rise faster than headline inflation.
The ABS data shows that household type matters enormously, yet the detailed Living Cost Indexes are published nationally rather than at the state level.
Policy responses should start with better data: there is a need for granular, state-level household cost-of-living measures to target support where pressure is greatest and ensure payments and concessions keep pace.
A falling headline inflation rate is not enough. What matters is whether households can afford to live.
• Dr Abebe Hailemariam is a senior research fellow with the Bankwest Curtin Economics Centre at Curtin University
