Perth households are paying almost three times as much for medical services and schools compared to 20 years ago, Business News analysis reveals.
The costs of healthcare and education have risen more sharply than almost all other sectors, with the exception of heavily-taxed tobacco and alcohol.
A new house is 171 per cent more expensive, and utilities like gas, water and power have registered big rises (see graphic above).
But not everything has been going up.
The prices of staying connected with loved ones, buying clothes, and purchasing appliances have all fallen over that period.
Across a basket of items, Perth families are paying 70 per cent more than two decades ago, according to analysis based on consumer price index data from the Australian Bureau of Statistics.
Wage growth has run ahead of inflation, however, and the huge 131 per cent lift of disposable income per capita over that period also indicates households are generally much better off than in 2003.
While the overall inflation rate is driven by macroeconomic factors across those 20 years, chiefly the Reserve Bank of Australia’s settings, the relative changes of each item tell their own story.
The numbers show three clear trends.
Goods prices rose less than services, tradable products increased slower than those that can’t be traded, and highly regulated industries have appeared towards the top of the list.
Insurance, veterinary care, university education, child care and hairdressing were among the services which more than doubled in cost across the 20-year period.
Services on average crept up 82 per cent, compared to 63 per cent for goods.
The University of Western Australia Business School dean Peter Robertson said improving technology, and the growth of developing economies, had helped keep goods prices under control.
Professor Robertson said inflation had been kept low for most of the past two decades.
“One of the reasons (is) we’re able to import goods from China at a very low cost,” he said.
“Prices on things like TV sets, assembled computers… have generally had low inflation rates.”
Australia had benefited from this global trend, Professor Robertson said.
But by contrast, the costs of labour-intensive services industries were largely dependent on wages, he said.
Increasing demand for workers is generally offset by only limited changes to labour supply as the population grows.
In economics, it’s referred to as the Baumol effect, because it is harder to lift productivity in industries with low capital investment and high reliance on workers.
A miner or manufacturer can cut costs and boost production by investing in bigger equipment, but a hospital or school can’t easily increase the number of students or patients for each teacher or nurse.
But taken together, the effects are positive.
Higher wages benefit households, while falling goods costs mean those wages can buy more, Professor Robertson said.
At home
There’s been a startling divergence in the cost of renting compared to building a new home since 2003.
Rents have lifted 70 per cent, less than half the skyrocketing price tag of constructing a house.
“Over the last 20 years Australia has failed to fundamentally enable housing supply to easily meet demand,” Property Council of Australia WA Division director Sandra Brewer told Business News.
Ms Brewer said 40 per cent of housing construction costs were taxes and charges.
“As the inflation data proves, there's a direct correlation between rising property charges over the last 20 years and increased costs of construction, which has been lethal to housing affordability,” she said.
“The barriers to more affordable housing construction are poor planning systems and mediocre policy choices, and when combined with state and local taxes, add to the cost of building a home.”
The gap between rents and homebuilding costs hasn’t always been as pronounced, the data shows.
Rents dropped substantially in Perth after the end of the resources mega-boom, and have been recovering rapidly since the pandemic.
In September 2014, which ABS data shows was the peak of the city’s rental market, rents were 86 per cent higher than they had been in March 2003 (the base quarter for the Business News analysis).
At that time, the cost of building a new house had lifted 90.1 per cent, making the two broadly comparable.
The price tag to build a house was reasonably steady from that time until late 2020.
It’s jumped 37 per cent since September of that year, with about $1.1 billion of federal and state stimulus pumped into the sector, worker shortages, and material supply frustrations.
Also at home, water, gas, and power were all in the top 10 items with the largest price surges.
That’s despite utilities having a high level of regulation and government ownership.
The state government has a monopoly in electricity retailing for consumers, through Synergy; and in water supply, through Water Corporation; while gas is a competitive market with private providers.
Gas and electricity are regulated by the Economic Regulation Authority.
Power bill rises lagged other utilities until 2009 as the government had opted to freeze prices.
More recently, new entrants to the gas retail market have slowed the growth of gas prices, while the government has dramatically upped subsidies for Synergy, which were budgeted to hit $1.7 billion over the next four years.
Food for thought
Curtin University associate professor Elizabeth Jackson said improvements to supply chains, optimising logistics and just-in-time management had brought big benefits.
“It’s absolutely immeasurable,” associate professor Jackson said.
“The concept of just-in-time, minimisation of costs, and maximisation of quality has been a miracle of commerce.
”(Before the pandemic) you could forget about father’s day, jump online, order a leaf blower from China… delivered to your home”
Business News’ analysis shows the price of foods, especially meat, have grown faster than most other goods across the past 20 years.
Associate professor Jackson said food had to move quickly to consumers, and many items had extra costs for refrigeration.
“Within the food sector, the foods that have gone up are really the frozen foods,” she said.
But whatever the data shows, the change over decades has been drastic.
Associate professor Jackson said her grandparents had lived in Perth in the 1950’s and raised their own chickens.
They’d need to prepare the poultry themselves to eat, a highly time-intensive process.
That’s a reminder of how economic development has changed the lives of consumers.
“Food is valuable, when you’re consuming at the end of the chain, it has gone through enormous value adding processes,” she said.
