Monday, September 03, 2007

Sunday dollars+sense: So you don't believe the rate of inflation

Do you get the feeling that you are being lied to once every three months? In October, slap bang in the middle of the election campaign the Bureau of Statistics will do it again.

It’ll tell us that Australia’s inflation rate is two-point-something.

Last time it told us it was 2.1 per cent.

I have yet to meet anyone who thinks that prices are actually increasing that slowly, certainly not anyone who drives a car or attempts to catch a bus or rents a house or pays a mortgage.

Part of the reason why we all think that prices are climbing more strongly that the statistics say is that we tend to notice the prices that go up.

I am grateful that (thanks to China) computer power and budget clothes are cheaper than they have ever been and that (thanks to overproduction) wine is cheaper than it has ever been, but I tend not to dwell on it.

And part of the reason is that many of us are correct to be suspicious – our own personal inflation rates are well above the Bureau’s average...

Its so-called analytical living cost indexes released during the week make that clear.

Your rate of inflation depends on what you choose to spend your money on.

If you were keen on bananas (and remained keen on them even after the price climbed) your own personal rate of inflation would have been stratospheric last year. This year it would have been low, even negative as banana prices returned to earth.

The Bureau assembled the typical spending patterns of four types of Australians: wage slaves, old-age pensioners, people on other government benefits and self-funded retirees.

Their patterns are strikingly different. For instance old-age pensioners spend only half as much each week on food as wage slaves, but because of their much lower income they spend a much greater proportion of it on food.

The Bureau says most of us – the wage slaves – had an inflation rate well above the national average in the last year (3.1 per cent compared to 2.1 per cent).

People on government benefits had a high rate as well (2.8 per cent) with age pensioners at about the average and self-funded retirees at 1.9 per cent.

For people with time on their hands, the retirees and the pensioners, things are probably even better because they have time to shop around.

Now you know. But I don’t for a minute expect you to believe it.