In every election the cost of living is a big-ticket item. This year, with inflation rising faster than it has for most of the past decade, the issue will likely dominate debate, especially as the big price rises in the past year have been for items we can’t avoid buying.
On Tuesday, Scott Morrison was asked about the price of bread, milk, and rapid antigen tests. I am generally averse to such “gotcha” questions. They don’t actually reveal much about the abilities of the prime minister. Such questions mostly just lead to political advisors ensuring everyone is armed with the latest prices of groceries and some pithy line about what type of bread they like to eat.
I do however agree with Amy Remeikis who noted that knowing such things is “important when you lead a government that decided $44 a day was enough for those without a job to live on, and constantly bang on about needing to ‘live within your means’”.
This is pertinent because on Wednesday the latest cost-of-living index showed that in 2021 the cost of living for those in vulnerable situations – those on pensions or jobseeker – rose quite ahead of those who live in households where the main income comes from employment:
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And yet for all households the cost of living grew less in 2021 than did inflation.
The reason is to do with what counts as inflation and what counts as cost of living.
To work out the consumer price index (CPI) figures, the Australian Bureau of Statistics puts together a basket of goods and services which it then weights in order to represent the average amount spent in a week on each item by the average household.
For the cost-of-living figures, the bureau weights those items dependent upon the average spending of different types of households – eg employees, aged pensioners, self-funded retirees.
The weightings given can vary quite a lot.
Aged pensioner households, for example, spend 13% of their weekly expenditure on essential food and drink compared to 8% by employee households.
Because they are older, self-funded retirees and aged pensioners spend a lot more of their budget on health than other households, and self-funded retirees spend a lot more on holidays than everyone else:
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The big difference though between the CPI and cost of living is housing.
In the CPI the ABS measures house prices but not mortgage costs, while the opposite is true for cost of living.
So, when house prices are rising much faster than mortgages (as they are now because interest rates have fallen) then generally inflation grows faster than cost of living:
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But this does not mean cost of living pressures are being exaggerated.
What is important is what prices are going up the most.
Last year the ABS issued a one-off look at the price rises of “non-discretionary items” (eg bread, rent, electricity, petrol, healthcare) compared to discretionary items (cakes, restaurant meals, motor vehicles, holidays).
Even here there are issues – hairdressing is defined as “discretionary”, not so much because you can go without a haircut forever but rather because it can be put off. The same applies for items such as garments and footwear. Yes, we need clothes, but you generally don’t need to buy clothes each week in the same way you do food or paying for childcare or rent.
What the figures show, when combined with the cost-of-living figures, is that poorer households spend significantly more of their weekly budget on non-discretionary items than do wealthier ones – and much more so than is represented in the CPI figures:
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This is important because in the past year there has been a big rise in the prices of non-discretionary items compared to more discretionary ones:
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And in the past decade the prices of non-discretionary items has risen by 26% compared to just 12% for those items we can put off purchasing.
It all goes to the fact that while inflation is a useful measure, it can hide the reality not just of cost of living but also of the impact of price rises of items that you cannot avoid – in effect, the cost of essential living.
But even here there is still more work that can be done.
Even when we look at items as essential or discretionary there remains a great deal of difference within each category. In the UK, Jack Monroe has been campaigning to calculate what is known as the “Vimes Boots Index” of prices.
The index draws on the Terry Pratchett character, Sam Vimes, who noted that having to constantly buy cheaper, badly made boots would end up costing poor people more in the long run compared to what wealthy people could afford – expensive but well-made boots that would last a decade or more.
It’s why for example the ABS might suggest footwear is a non-discretionary item, but it only is if you can afford footwear that lasts.
And so the cost of living should very much be a focus during this election – but if we just leave it with asking politicians the price of milk and bread, we are doing those for whom buying essentials is a daily struggle a major disservice.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
