Things are worse than our Treasurer wants you to know
I think we're all familiar with the Consumer Price Index (CPI) which is the most common tool used to measure the cost of living. Only we shouldn't look at CPI at all if we want the real picture of what is happening for average households.
Why?
Because it doesn't factor in interest on loans such as mortgage interest.
With CPI conveniently leaving out these costs, Jim Chalmers on the 8th January was able to argue that:
"real wages are growing for the first time in years"
I'm not saying don't trust Jim Chalmers - all governments do this. I just want you to ignore any claims made based upon the CPI. It's just not accurate enough, even the Australian Bureau of Statistics, (ABS) says so.
Instead, look out for a separate ABS measure called 'selected living cost indexes.' This is what I used in Chapter Two of 'How Low Can You Go?' Selected living cost indexes includes interest rates on loans and the costs typically paid by an 'employee household'. Most of us have loans of some kind and most of us work for someone else so this is what I go by.
If Jim Chalmers had used 'selected living cost indexes' would he be crowing about real wage increases? Not by a long shot. This measurement indicates that the cost of living has gone up 9% according to the most recent information. Typical wage increases - 4%.
Surprise, surprise. Things are not getting better. In fact, the buying power of wages has been falling for over two years.
In Chapter Three of 'How Low Can You Go?' I said that we can't afford real wage increases yet because inflation must come down first. If we had real wage increases before this happens, unemployed households and workers, including gig economy workers, who cannot get a pay rise, would be worse off. As for middle Australia, if they get a pay rise, the rise in interest rates will swallow most of it up. Very few of us would be better off; but the most vulnerable would be worse off than they are now.
I predicted in July 2023 that the price on food would stabilise in 2024 but we would never again return to the golden era of below 2% inflation. When I made this prediction in April 2023, food price increases were averaged at 7% which I believed was unsustainable and had to come down. Now they are 4.8%. Better yet, Coles and Woolworths have copped a lot of political heat about price increases. So much so that they are facing an enquiry.
In 'How Low Can You Go?' I talk about things getting heated in supermarkets.
"... soon it will be handbags (as weapons) at five paces..."
Consider this enquiry the political impact of angry shoppers speaking up.
I doubt it can do more than delay further prices rises. It cannot have any teeth because these are private companies with shareholders to consider. (No judgement here, it's just a fact). If we have another significant event such as a pandemic or war impacting on imported foods, prices will jump again and then stay at the new level. That is how the game is played.
And yes, it is a game that you can win - once you know how.
For more info on this post:
ABS: Selected living cost indexes
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Cover Photo: Markus Spiske Unsplash.com