Monday, November 05, 2007

Sunday dollars+sense: John Howard is right,

Most of us never have been better off. The Reserve Bank is so worried about inflation that is set to push up interest rates on Wednesday.

But should we be worried? Are the prices we pay really spiraling out of control?

You can examine your own situation by adding up the totals on your receipts or you can log on to the Bureau of Statistics website and check out the actual prices of the goods that you buy as measured each three months by the Bureau’s shadow shoppers.

The Bureau warns that the quality of goods is changing as well (it is usually getting better) so with that in mind, lets take the prices out for a spin.

Canberra is certainly a cheap city in which to buy butter - the cheapest in Australia. 500g will set you back just $2.80 here, compared to $3.42 in Sydney and almost $4.00 in Darwin...

And butter has come down in price here over the last three months. It used to cost $3.42 here, and a time when it went for $3.50 in Sydney.

Our bread is pretty cheap. At $3.24 for a sliced white loaf it is less than in Sydney and Melbourne, although more than in other state capitals. It’s nudged up from $3.15.

Our roast beef is unfortunately the most expensive of the capitals. One kilo here costs $12.91. But at least it’s cheaper than it was three months earlier when it cost $13.47.

My rough and ready calculation tells me that of the 51 Canberra prices published by the bureau, 25 have gone up since last time, 24 down and 2 have remained unchanged. Hardly roaring inflation, depending on what you buy.

But whatever you buy, if you are earning a wage you are very likely to be better off than you were. Repeat: better off.

CommSec has just calculated a purchasing power index by plugging in changes in the prices I have just mentioned to changes in after-tax wages over six years.

It finds that two-thirds of the regularly purchased items have become more affordable over time - especially chicken. bacon, tinned salmon and beer.

Becoming less affordable in a big way have been petrol, bananas, margarine and soap.

As Commsec puts it, “consumers are getting ahead”. But it warns that consumers don’t think so – we tend to focus on the prices that go up rather than the ones that go down and our steadily increasing after-tax pay.