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The Aussies copping the biggest cost-of-living hit - and those bucking the trend

It’s a great time to have assets and a bad time to have debts.

Inflation is almost defeated but nobody much seems to be partying.

Prices might have stopped going up but they are certainly not coming down. And anyway, for most people, the cost of living is rising higher than inflation. Quite a bit higher.

The cost of living indices came out recently and they paint an ugly picture. A picture of a nation divided: Those of us with the cost of living above inflation, which is most kinds of people, and those with the cost of living rising more slowly than inflation. The only people in that group? Self-funded retirees.

The next graph shows the situation. People currently paying off their homes and those who are renting are getting slammed with an enormous bill for going about their everyday lives. But those whose homes are paid off are in the clear.

Graphic showing living costs of different demographics compared to inflation.
Meanwhile, employees saw their living costs rise more than inflation. (Jason Murphy)

It’s a great time to not have a mortgage.

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The graph shows a big difference between the story told by the inflation statistics and that told by the living cost index. The reason is that mortgage costs aren’t in inflation. They go up and down mostly because of interest rates, and those are driven by RBA decisions.

Also by Jason Murphy:

The RBA has cranked up interest rates relentlessly over the past 18 months, so that a person with an average new mortgage in NSW is paying over $1,000 more to the bank each month than they were before the rate hikes. Those with larger mortgages have seen even bigger increases, while those with older mortgages that are partly paid off have seen smaller mortgage increases.

The ‘employee households’ in the chart above includes a lot of families with kids and I bet there are a lot of kids seeing their families tighten their belts. Food, fuel and housing are eating up a lot of family budgets with much less left over. Childcare costs are up too.

Fuel is a particularly tough one. Petrol prices have soared back over $2 a litre in most capital cities just as school goes back and traffic gets worse.

Portrait of happy grandmother and her adult grandson as inflation remains high.
Hiking interest rates to tackle inflation hurts younger Aussies much more than it does their grandparents. (Source: Getty) (imamember via Getty Images)

As the Commonwealth Bank (CBA) points out, it is non-discretionary expenditure that is rising in price right now.

“Discretionary inflation lifted sharply in 2022/23. But it has retraced just as swiftly,” CBA economist Gareth Aird said in a recent note. “Prices for non-essential items made a sharp levels adjustment upwards when demand in the economy was strongest. But the lift in prices has not continued as demand has softened.

“In contrast, non-discretionary inflation remains quite elevated.”

That leaves a lot of families basically trapped. They have cut expenses to the bone. Now, their only option is to work more, take more shifts, and maybe drive Uber Eats on rainy nights. Luckily the labour market remains strong and that is possible.

Generation gap

The generational effects of monetary policy can be in no doubt – hiking rates hurts kids more than it does their grandparents.

It is important to remember that this is situational. Back in 2020, when childcare costs were slashed and interest rates were falling, the roles were reversed. Back then, retirees were the ones whose cost of living was rising faster than overall inflation, while employee households saw costs rising above inflation.

Disposable incomes

Some self-funded retirees are also enjoying higher incomes on their rental properties. While many investors are raising rents just to be able to afford to pay the bank, another group are seeing rent increases turn into disposable income.

A portfolio of cash in the bank and a paid-off investment property is looking like a cash fountain right now, with cash finally delivering returns and rising rents making property a good investment. Stock markets are hitting their highest level in five years too.

It’s a great time to have assets and a bad time to have debts.

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