While inflation has officially reached 7.3 per cent for the year, prices aren’t rising at the same rate across the board.
This is why something called a personal inflation rate – that is, how quickly prices are going up for the things you actually buy – can tell you how much you're really being stung.
By answering a few simple questions about your lifestyle, we can estimate yours, and show you which parts of your budget are being hit the hardest. Don’t worry, the ABC won't capture or store your answers.
You can calculate your personal inflation rate on the ABC News website.
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To truly understand how inflation is affecting you, we need to look at a whole lot more than a single number.
We can see which parts of your budget are being hit the hardest by looking at the latest data released by the Australian Bureau of Statistics.
But first we need to get a few things straight about how inflation works.
Let's start simply, by looking at how much two items – petrol and health care – make up in a typical Australian budget.
According to the ABS, the typical Australian spends about twice as much on health care as they do on petrol. So, as you can see, the healthcare box is about twice as tall as the petrol one.
The other half of the inflation equation is rising prices, so we'll add that into the mix as well.
We can now see how there are two factors playing a role: the height of each box still shows the proportion of spending in your budget, but now the width shows us how much things have gone up in price.
The bigger the box, the more that expense is contributing to inflation.
Health care makes up a bigger slice of this budget and has seen modest increases in price, so its box is tall and narrow.
Petrol prices, on the other hand, have gone through the roof in the past year. That's why its box has a very different shape.
Notice how, despite being a smaller part of the budget, petrol is contributing more to inflation than health care?
This is why differences in lifestyle can either soften the blow, or expose you to the worst of inflation.
So, how can you make sure you're on the right side of things?
The bad news is that, for the most part, you can't. The expenses that are rising fastest at the moment are some of the hardest to avoid.
If you need to drive, you're at the mercy of petrol prices. If you have a mortgage, you're going to have to deal with higher repayments as interest rates rise.
There are a few things that could ease the burden. The trouble is that they're out of our hands as individuals.
Inflation and you
Before we look at the solutions, let's take a closer look at the problem.
The impact of inflation depends on the makeup of your budget, so that's where we need to start.
To estimate your personal inflation rate, we took a breakdown of average Australian spending called the Consumer Price Index (CPI), and made a few tweaks based on the answers you gave us earlier.
This obviously isn’t going to be a perfect reflection of your exact budget, but it’s enough to get a pretty good sense of things.
You can see that {{exp-first}} and {{exp-second}} are your biggest regular expenses, while {{exp-last}} is the smallest.
Next, we applied the effects of rising prices to your estimated budget, like we just saw with health care and petrol.
Looking at it this way, the sizes of the boxes reveal how inflation is impacting your budget.
And if we arrange them in terms of their contribution to inflation, we can see which expenses are having the greatest impact.
For you, this is {{area-first}} and {{area-second}}.
Let's start with food. Rising prices at the supermarket are a recipe for trouble in most budgets.
By zooming in, we can see which Foods and non-alcohol beverages have been hardest hit.
Flooding on the east coast has dramatically pushed up the prices for fruit and vegetables in particular.
This means that healthy choices at the supermarket are going to be costing you more than usual.
Oils and fats have gone up even more than vegetables, but they're a tiny sliver of most budgets. It's likely a different story for your local fish and chip joint, though.
That's it for food. What else?
{{drive:Since you're a driver, Transport is also near the top of the list for you.}}{{nodrive:Transport is way down the list for you since you don't drive.}}
{{drive:Petrol has gotten so expensive lately that even spending a small amount on it can send your personal inflation rate skyrocketing.}}{{nodrive:If you did, the huge increases in petrol prices would have almost have sent it to the top of your list.}}
The war in Ukraine is a big part of the high prices for petrol, but, as we'll get to shortly, there's another reason that's a little closer to home.
{{drink: {{nosmoke:How about your vices?}}}}{{smoke: How about your vices?}}{{nodrink: {{nosmoke: You don't smoke or drink, which is not working in your favour at the moment.}}}}
Alcohol has increased in price in the past year, but not by as much as most other things. So, by {{nodrink:not}} having it in your budget, your inflation rate is {{drink:lower}}{{nodrink:higher}} than it otherwise would be.
{{drink: This is because when you spend money on drinks, it means you're spending less of your budget on things that are going up faster than alcohol.}}{{nodrink: This is because when you don't spend money on drinks, it means you're spending more of your budget on things that are going up faster than alcohol.}}
Given the price of cigarettes these days, it might be surprising that it's a similar story for tobacco.
While tobacco has gone up the most of any category in the past decade due to huge tax increases, this year has seen other key expenses playing catch-up.
Housing is where things really get interesting, though. It can make a big difference whether you rent, have a mortgage or own your home outright.
{{renter:Although it takes up a large amount of your budget, housing isn't quite at the top for you.}}{{outright:It's quite a long way down the list for you.}}{{mortgage:And it's looming large for you.}}
To see why this is, we need to zoom into your Housing expenses.
Gas and other household fuels have been affected by the war in Ukraine, similarly to petrol.
{{renter:Rent – an expense that has seen surprisingly low inflation for the past year – understandably takes up the majority of your housing budget.}}{{mortgage:Mortgage repayments are the big one, though.}}{{outright:While these costs are on the rise, they're a relatively small part of your overall budget. Remember, we're only looking at a small part of the bigger inflation picture here.}}
{{renter:However, as most leases last for six months or a year, inflation data lags way behind the rental market. This means that this figure is going to be far higher for anyone looking for a new place, or renewing their lease.}}{{mortgage:And with interest rates on the rise, they're only going to get more expensive.}}{{outright:It's also worth thinking about what is missing compared to other households. Namely, rents and mortgage repayments.}}
{{renter:But there's another reason your personal inflation rate is lower than the official one.}}{{mortgage:This is a big part of why your personal inflation rate is so much higher than the official one.}}{{outright:But there's another reason your personal inflation rate is lower than the official one.}}
Measuring housing costs
The official inflation rate works a lot like the personal one we calculated for you – only, the "budget" it's based on is something called the Consumer Price Index (CPI).
The CPI is supposed to be representative of household spending. However it has one glaring omission: mortgage repayments.
This means that the effects of higher interest rates aren't captured in the official inflation rate.
Instead, it includes an expense called "New dwelling purchase by owner-occupier" which represents the price of a newly-built house or major renovations.
The thing is, when people buy houses, they tend to use a home loan, so this isn't really measuring the cost of living for Australian households.
We can see the impact this is having on the official rate by looking at the Housing section of the Consumer Price Index.
High prices for both materials and labour are pushing up the price of construction in a big way.
Newly-built dwellings account for almost 9 per cent of the CPI, and have seen a price increase of over 20 per cent in the past year.
This has driven up the official rate.
Compare that to the Housing section of your budget. It's pretty different, right?
{{renter:And you don't even have a mortgage.}}{{outright:And you don't even have a mortgage.}}{{mortgage:Mortgage repayments might look like a bigger version of the box from the CPI, but there's one big difference between them.}}
{{renter:This is what the Housing budget of the average mortgage borrower looks like. Mortgage repayments represent a large chunk of their budget – and every time the Reserve Bank raises interest rates, this box gets a bit bigger.}}{{outright:This is what the Housing budget of the average mortgage borrower looks like. Mortgage repayments represent a large chunk of their budget – and every time the Reserve Bank raises interest rates, this box gets a bit bigger.}}{{mortgage:Every time the Reserve Bank raises interest rates, this box gets a bit bigger.}}
However, increases here won't show up in the official inflation rate.
That's why raising rates can bring inflation down, all while making life harder for those with a mortgage.
An expensive cure
Inflation at these levels is scary, especially if it goes on, and especially for people who don't have much to fall back on, which in Australia is a lot of us.
And that's why over the past six months, the Reserve Bank has been aggressively raising rates in an attempt to bring down inflation.
But, as we've seen, that's not the same thing as reducing the cost of living.
Politicians often say that raising interest rates will "cool" the economy, however this is a euphemism for a pretty ugly reality.
Really, it's a bit like removing a splinter with a kitchen knife. When interest rates go up, people and businesses are hit with higher repayments on their loans.
And it's not just those with mortgages who will lose a chunk of their incomes, since businesses will also have less money to hire and pay staff when their loan repayments increase.
Rather than reducing the cost of living, the idea is actually to increase it so we have less to spend.
This is all sound logic, however it's based on a key assumption: that less money in our pockets means less spending.
But think back to your budget and what's driving that inflation. Where is it that we should be reducing our spending?
The RBA hopes that raising interest rates will reduce demand, but how does that work for petrol prices? Or for utility bills?
Regardless of how much we're paid, everyone is going to need to get to work, to cook, to eat healthy, and to have somewhere to live.
This is at the heart of why Greg Jericho, an economist at the Australia Institute, sees the current period of inflation as fundamentally different to previous ones.
"If you think about the mining boom, which certainly did see inflation get over 6 per cent, everyone was feeling good. There was just a lot of money," he told the ABC.
"People could understand that the economy was overheating.
"Whereas for this one, there's been no joy. It's this weird thing where we're getting punished after a period where we're already feeling like we've been punished."
Prices aren't rising because Australians are driving too much or eating too many vegetables. And it's not just a one-off event brought about by COVID, the war in Ukraine and a year of extensive flooding, though these events have certainly played a significant role.
According to a recent report released by Jericho and the Australia Institute, the cause this time around is largely corporate profits.
"The greatest driver of inflation is firms being willing and able to increase their prices, far above what is "explained" by simply the growth of labour or other input costs."
Over the past three decades, profits have increasingly lined the pockets of business owners rather than being shared with workers.
If wages had kept pace with profits, then taking a hit through interest rates might be easier to stomach.
As it is, recent corporate earnings give an insight into how much businesses have profited while households have been feeling the pinch.
Woodside reported a five-fold increase in its half-year profits.
Exxon and Chevron posted record profits, with their combined takings coming out at the equivalent of roughly $US14 million an hour.
Coles has also seen its profits increase — up 4.3 per cent in the past year.
Despite this, Jericho writes that an unfounded "fear of rising wages" has been skewing Australia's response to inflation for decades.
"Attacking inflation by aiming deliberately to increase unemployment and restrain wage growth even further, is a 'blame-the-victim' policy that will only make workers pay even more for a problem they clearly did not create."
It's hard to argue that raising interest rates won't reduce the official inflation rate — it almost certainly will, but it will come at a significant cost that will be shouldered by everyday Australians.
Credits
- Reporter and developer: Julian Fell
- Designer: Ben Spraggon
- Editors: Matt Liddy and Tim Leslie
Data
- Australian Bureau of Statistics Selected Living Cost Indexes, Australia (6467.0) - TABLE 3. Gross Insurance, Mortgage Interest and Consumer Credit, Index Numbers and Percentage Changes, by Household Type
- Australian Bureau of Statistics Consumer Price Index, Australia (6401.0) - TABLE 7. CPI: Group, Sub-group and Expenditure Class, Weighted Average of Eight Capital Cities
- Australian Bureau of Statistics Consumer Price Index, Weighting Pattern, 2021
- Australian Bureau of Statistic Survey of Income and Housing (SIH) 2019-20, Housing Occupancy and Costs, Australia - Table 4.1 Housing Costs As A Proportion Of Gross Household Income, Tenure and landlord type, By selected household characteristics, All households
Methodology
-
Personalised budget constructed using CPI weightings with the following alterations:
- Removed "New dwelling purchase by owner-occupier" for all readers.
- Removed "Automotive fuel" and "Motor vehicle" for non-drivers.
- Removed "Alcohol" for non-drinkers.
- Removed "Tobacco" for non-smokers.
- Removed "Property rates and charges", "Maintenance and repair of the dwelling", and set rents to 20 per cent of budget (as per SIH) for renters.
- Removed "Rents" for home owners.
- Added "Mortgage repayments" at 16 per cent of budget (as per SIH) for mortgage borrowers.
- Other weightings adjusted proportionally to ensure the sum of all categories add up to 100 per cent.
- Inflation rate calculated as a weighted average of all categories according to ABS inflation data, without accounting for seasonal adjustments.
