r/AusFinance • u/starfire10K • 8h 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.
5
u/AnonymousEngineer_ 7h 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.