Tuesday, May 18, 2010

Are prices climbing? That depends on who you are.

Worried about your cost of living? Don't be, if you are on a salary. At least for now.

The latest especially-tailored living cost indexes show employees faced an inflation rate of just 2 per cent over the past year.

But the prices facing Australians out of work climbed quickly.

The Bureau of Statistics says prices facing age pensioners jumped 3.1 per cent.

This needn't be bad news for age pensioners as their payments are increased each March and September in line with either the official inflation rate or their own cost of living index or increases in male wages, whichever is the greatest.

But others receiving government benefits aren't as fortunate. Unemployed Australians on the $12,033 NewStart allowance get only CPI indexation whether it meets their costs or not.

The Bureau says all through last year the prices facing so-called "other government recipients" climbed faster than the CPI, falling back only in the most recent quarter.

Once close to the pension, the NewStart allowance has slipped to around two-thirds of it as a result of the different indexation treatment... Projections by the Australia institute suggest if the different treatment continues it will be worth a mere one-half of the pension by 2050.

Self-funded retirees are also finding life tougher. Their prices climbed faster than the CPI throughout last year and are now climbing at the same rate; 2.9 per cent per annum, well above the 2 per cent facing workers.

Why are employees so well off compared to Australians not on a wage? Its because of the things they spend their money on.

Whereas the prices of financial services and mortgages are important in the budgets of wage earners, they matter less to Australians out of work. Both were falling early last year.

Retirees spend about twice as much of their income on health services than employees, especially on prescription drugs.

According to the Bureau "other government recipients" spend 10 per cent of their budget on alcohol and tobacco, compared to 8 per cent for workers and 7 per cent for age pensioners.

Food also features much more prominently in the budgets of Australians receiving benefits and the cost of overseas travel matters a lot to self-funded retirees.

But history suggests the inflation tables are about to turn. Mortgage rates matter to families who work, and they've begun to climb.

Alright for some:

Annual increase in living cost

Employee households 2%
Age pension households 3.1%
Other benefit households 2.8%
Self-funded retirees 2.9%

Official Consumer Price Index 2.9%

ABS 6463.0, March quarter 2010

Published in today's SMH and Age

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