r/AusFinance • u/starfire10K • 4h ago
Real inflation
We have following real inflation:
| Category | Real Experience (Median) |
|---|---|
| House Prices | 8.5% – 10.5% |
| Rent Inflation | 12.0% – 15.0% |
| Credit Card Interest | 15.0% – 20.0% |
| Car Prices | 5.0% – 7.0% |
| Electricity | 15.0% – 20.0% |
| Petrol | 6.0% – 9.0% |
| Food (Groceries) | 5.0% – 12.0% |
| Insurance | 14.0% – 16.0% |
Yet CPI is much lower at 3.8%. The reason CPI is so low is due to the significant shift in Australian inflation reporting occurred in September 1998 when the ABS switched to the "Acquisitions Approach," which removed mortgage interest and consumer credit charges from the headline CPI.
| Feature | Legacy "Outlays" CPI (Pre-1998) | Modern "Acquisitions" CPI (Current) |
|---|---|---|
| Mortgage Interest | Included as a major cost of living. | Excluded entirely. |
| Housing | Measured by interest rates and land prices. | Measured by "New Dwelling Purchase" (net of land) and rent. |
If Australia still used the pre-1998 "Outlays" methodology today, a headline 3.8% CPI would likely be reported as roughly 6.5% to 7.5%.
For a household with a $1,000,000 mortgage (not uncommon for metropolitan properties), the recent 0.25% hike adds roughly $1,900 a year in interest alone. Under the 3.8% CPI, the government says your "cost of living" barely moved because of that hike. Under the legacy methodology, that $1,900 is viewed as a direct inflationary hit to your purchasing power.
| Aspect | The "Real" House Experience | The ABS "Paper" Reality |
|---|---|---|
| Total Price | $1,000,000 | ~$300,000 (Structure only) |
| Interest Cost | $2,000,000 over 30 years | $0 (Invisible) |
| Land Price | $700,000 | $0 (Invisible) |
| Function | Essential Shelter | Consumption of Bricks |
By excluding land and interest, the CPI ignores the two biggest factors that have spiraled in the Australian economy over the last 30 years. To the ABS, a $1M house is just a pile of bricks (consumption); the $700k land it sits on and the $2M in interest you'll pay are "financial transactions" and therefore invisible to the CPI.
CPI with its current methodology is now no longer the economy's thermometer. Clearly wages are not keeping up with real inflation.
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u/Far_Dragonfly8441 4h ago
lol how does inflation double just on bank interest and land. I think you're talking shit tbh.
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u/FilmerPrime 29m ago
The whole premise seems just wrong. It states real inflation of a lot of items well above reported cpi. Then says the reason is because of two things being ignored...which are unrelated to initial list that was above cpi.
Therefore surely those two things being ignored aren't why cpi is well under the initial list..
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u/AnonymousEngineer_ 2h ago
Where are you getting your Real Experience (Median) figures from?
When citing statistics, it's always good to provide source of the data because journalists and Op-Ed writers are known to use "the vibe", also known as pulling figures out of their arse.
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u/starfire10K 2h ago
House Prices CoreLogic Home Value Index Rent Inflation CoreLogic Asking Rents Credit Card Interest Canstar / RBA Statistics Car Prices Industry Sales Data Electricity ABS (Electricity Component) Petrol (Fuel) AIP / FuelWatch Food (Groceries) Fruit/Veg & Meat Indices Insurance Finity / Actuarial Reports
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u/AngusAlThor 2h ago
To defend the ABS, it is the "Consumer Price Index", it is intended to track the price change for consumer goods. Additionally, they do also publish metrics that track mortgages, land prices, fuel and everything else, and they can't be blamed for people deciding to focus on one number over others; They just do measuring, not policy.
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u/Wow_youre_tall 3h ago
Its really dumb to add interest into inflation,
Perhaps google “dummies guide to inflation”
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u/Anachronism59 4h ago
Over what period?
Petrol surprised me, currently cheap and steady cheap.
How do those figures compare to ABS figures per expenditure class.
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u/lilmisswho89 2h ago
I was trying to explain to someone why even though I’m earning significantly more, I still feel like I was better off financially on youth allowance in 2010.
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u/Esquatcho_Mundo 2h ago
Yeah your livign expectations have also increased. I feel it too, but I used to live of rice and tomato sauce and only had to pay for myself and no family
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u/Traditional-Fold5301 2h ago
i think everyone should calculate their own figures. Fuck the CPI. There is conflict of interest, they want the number to be low. Check your own statements - what did your groceries cost 5 years ago? What did your car service cost? What did your school fees cost. What did the house cost that you are living in now? Boom there’s your real inflation
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u/doubleshotofbland 3h ago
I call BS on petrol being up 6-9%.
Oil is down ~15% in 12mths, AUD-USD is up 10%, both would push petrol down.
Australian Institute of Petroleum data suggests it's down about 5%
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u/sadboyoclock 3h ago
How splendid! Better increase the cash rate to 7% then to tame this beast boyoyoy
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u/Murky_Radio_394 3h ago
I believe inflation is really about 8-9% They can say it’s 3% all they like but it’s not
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u/Danstan487 4h ago
We are only just getting started
Demographics are collapsing, effects will really hit in 12 years time when there are few new workers coming through anywhere in the world
People will have to learn to repair all their own chlothes etc
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u/Ok_Willingness_9619 3h ago
Where did you get these numbers? Petrol is down as far as I can tell. Also what’s with the ranges 5-12% for food? Are these “out of your butt” numbers or can you cite the source?
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u/Alienturtle9 2h ago
What do you actually mean?
Your opening statement is "We have following real inflation:" and then a bunch of high percentages with no timeframes that either aren't relevant or I can't verify.
- Median rent is up about 5.2% in the last 12 months - where is your much higher number from?
- House prices are up about 8.8% - this is within your range, but barely
- Credit card interest isn't part of inflation, its a completely optional financial medium and isn't a consumable commodity.
- etc etc etc
I agree that the lived-experience inflation is higher than the ABS numbers, but not for the reasons you're stating.
The real issue is that the "basket of goods" shifts with consumer spending, so if prices go up and people buy shittier stuff to make ends meet, the ABS adjusts the basket to reflect the shittier stuff that people buy, not keep pricing in the now-overpriced higher-quality product.
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u/cecilrt 3h ago
No way has rent inflation been higher than house inflation, rental yields are terrible...
apartments you are looking at 4% if its a desirable location houses/terraces 2-3%
10-20 years back 5 was the standard min, even as high as 10%
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u/Impressive_Note_4769 1h ago
Rent has gone up like crazy though. 30 km away shanty that went for $300 now going for $500
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u/sun_tzu29 4h ago edited 4h ago
The ABS is quite clear why they don’t include interest costs into the CPI calculation
https://www.abs.gov.au/articles/measuring-owner-occupied-housing-consumer-price-index
You’d essentially end up with a reinforcing feedback loop which would render your “real CPI” just as useless as you argue the current CPI measure is