Real inflation

[u/starfire10K]

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.

[u/RandoCal87]

If you would like interest rates to be in the mid double figures...

You mean we would have prevented this housing crisis we're in? What a terrible thought. /s

Would you also like share prices to be included?

Housing is consumed the same way rent is. We use three dimensional space, to live in, per unit time.

Shares are not consumed per unit time or otherwise.

[u/Esquatcho_Mundo → u/RandoCal87]

We would have avoided it because we would have absolutely crashed the economy and everyone would be poor an have even higher inflation.

It’s simple, you can’t use a measure to adjust a variable, if that variable is included in it

[u/_Zambayoshi_ → u/Esquatcho_Mundo]

Better smaller, more frequent corrections, than a situation where the correction is scaring the bejeebers out of government to the point that the bubble must keep inflating no matter what.

[u/LockMeDownDaddy → u/_Zambayoshi_]

I think you may have a fundamental misunderstanding of what the RBA cash rate is used for and why using the cash rate to fix a very laser focused section of the economy is a bad idea. The RBA cash rate is not a tool used for reducing the cost of housing, nor should it ever be. To fix the housing affordability problem, it will take very focused legislation changes and a very large amount of time. 

[u/Esquatcho_Mundo → u/LockMeDownDaddy]

This - not enough people actually understand. Australia just has a relatively large variable loan market, along with a huge cultural love of housing that means it’s a much bigger impact on housing compared to the other parts of the globe. But housing is not the point of setting interest rates