Every customer is aware that paying their bills is becoming increasingly difficult due to inflation.
According to the most available data, Australia's annual inflation rate fell to 4.1% as of December 2023 from a peak of 7.8% at the end of 2022.
However, most consumers' expense increases have been far harsher than these official inflation figures indicate.
Mortgage interest expenses are not included in Australia's statistical agency's Consumer Price Index, which is the primary indicator of inflation.
The cost of buying newly built homes, actual rentals paid to landlords by tenants, and out-of-pocket household expenses like utilities are all included in its measure of housing costs, which makes up 25% of the CPI's overall consumer "basket."
Changes in house ownership costs for owner-occupiers of previously constructed homes have no effect on the CPI.
The Reserve Bank of Australia's sharp interest rate increases over the past two years are not directly reflected in the CPI due to this odd technique.
"Selected Cost of Living Indexes" are alternative cost of living metrics published by the ABS. Homeowners' mortgage interest costs are included in these figures, unlike the CPI.
The cost-of-living indices for various household types are computed independently.
The group known as "Employees" has experienced the fastest rise in its cost of living due to rising interest rates because it comprises the biggest percentage of home owners with mortgages.
The cost of living for employee households, including mortgage prices, increased 6.9% in the year that ended in the December quarter of 2023. The official CPI inflation rate of 4.1% was nearly three-quarters slower than that.
Therefore, workers have suffered substantially more than traditional data indicates from both inflation and the RBA's biased response to it.
It is extremely ironic that the RBA has exacerbated the cost of living crisis, particularly for workers, by focusing only on raising interest rates to combat inflation rather than taking into account alternative strategies like price regulation, excess profit taxes, and supply-chain upgrades.
This impact in Australia is concealed by official inflation statistics, but that does not lessen how terrible it is. The impact of rising mortgage rates on consumer price inflation is recorded by statistical agencies in various nations, either directly (as in Canada) or indirectly (as in the US through a category known as "Owner Equivalent Rent").
The overall cost of living has increased at a little slower rate for households with lesser mortgage debt than for employees, who have seen a 6.9% increase.
The cost of living increased at the slowest rate last year—4.0%, roughly equal to CPI inflation—for self-funded retirees, who are often wealthier and have higher incomes and are therefore less likely to have outstanding mortgages.
However, the cost of living increased much more quickly for all other household types—including those receiving government transfers, age and super pensioners, and others—than the CPI suggested.
A highly one-sided approach is being used in the fight against inflation.
Rather than acknowledging (and mitigating) the influence of variables such as surplus profits, supply chain interruptions, and housing scarcity on inflation, the RBA believes that "excess demand" is the sole driver of inflation. To put it another way, Australians have too much money.
The expense of living is made harsher for workers than for any other group in society by the RBA's attempts to drain their purchasing power through high interest rates.
In fact, working households now face higher genuine inflation as a result of the RBA's policies. However, official CPI figures conceal this effect. The RBA should, at the very least, be forthright about how its policies are affecting Australians' actual cost of living.
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