Cost of Living Not Looking Good

We take a look at the Monthly Consumer Price Index Indicator released by the ABS 31 May 2023, a measure of inflation. Despite the rapid rise of interest rates by the Reserve Bank over the last 12 months to curb inflation, and with possible further increases next week, inflation has stayed stubbornly high. The report shows the CPI rose 6.8% in the twelve months to April, up from 6.3% last month. Here’s a chart of the CPI over the last four years, and as you can see, there’s been a bit of an uptick over the last month. However, if you exclude volatile items, that is, fruit and vegetables and automotive fuel, it seems like we may have hit peak inflation.

This seems to hold true for other countries as well. Here’s Australia, and here’s the UK, which also seems to be slightly trending downwards. Canada’s CPI is certainly on the way down. New Zealand is a bit flatter but trending downwards similar to Australia. The United States is similar to Canada, and the EU (which represents 20 countries in this chart) has certainly passed peak inflation.

However, if we look at housing inflation in Australia, outwardly, it seems to be following a similar trend. But, if you look at the numbers, housing inflation peaked at around 21.7% last year, and is still currently 9.2% well above the headline CPI figure of 6.8% and certainly above the Wage Price Index – how much wages grew over the year – of 3.7%. This means houses are getting more expensive in real terms. Our wages are falling behind both CPI and house prices. We are getting poorer.

This graph in the report is much more telling, and a more accurate reflection of what’s going on in Australia. Rents are going upwards with no signs of abating. As long as houses are in short supply, as long as there are more people looking for a place to live than there are places to live, this isn’t going to change anytime soon.

In a recent Senate Estimates hearing in Canberra, Reserve Bank governor Philip Lowe suggesting that higher rents will help reduce rental stress. That sounds like the ramblings of a mad man, doesn’t it? Well, not really. In his words, “The way that this ends up fixing itself, unfortunately, is through higher housing prices and higher rents. Because as rents go up people decide not to move out of home, or you don't have that home office, you get a flatmate. The increase in supply can't happen immediately, but higher prices do lead people to economise on housing. That's the price mechanism at work. We need more people on average to live in each dwelling, and prices do that.” So basically, this problem will fix itself by forcing people to economise, according to the governor.

But there is an elephant in the room. Immigration! Even the ABC are reporting: “Australian migrant population growth hits all-time high as borders reopen”, and, “Housing crisis deepens amid high immigration and low supply”. I quite like this article title from Macrobusiness: “Stop lying. Australia’s housing shortage is immigration driven”. Yes, there are a few people in the media and politics who do not wish to blame immigration for Australia’s housing woes.

Anyway, that’s my short analysis, if you can call it that, of Australia’s looming, if not ongoing crisis. What do you think? Is there anyway out of this?

ABS MONTHLY CONSUMER PRICE INDEX INDICATOR
https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/apr-2023

ABS CPI INTERNATIONAL COMPARISONS
https://www.abs.gov.au/articles/cpi-international-comparisons

RBA GOVERNOR “HIGHER RENTS WILL HELP REDUCE RENTAL STRESS”
https://www.abc.net.au/news/2023-05-31/philip-lowe-says-higher-interest-rates-will-bring-rents-down/102414220

OTHER NEWS ARTICLES MENTIONED
https://www.abc.net.au/news/2023-04-29/australian-migrant-population-growth-hits-all-time-record-high/102281798
https://www.abc.net.au/news/2023-04-03/housing-crisis-deepens-amid-high-immigration-and-low-supply/102178502
https://www.macrobusiness.com.au/2023/05/stop-lying-australias-housing-shortage-is-immigration-driven/

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Allégro by Emmit Fenn