We hear a lot about inflation being very low at the moment, just 1.00% in fact for the year to 30 June 2016 but have you thought about what your household’s inflation rate is? Depending on what goods and services you buy, your hip pocket may have been hit a little harder.
A helpful analogy is to think about Australia as the driest inhabited continent in the world. It’s true but try and tell that to the many Australians who have had their houses flooded or collapse into the ocean due to the large winter storms and rainfall through winter and early spring. Then there are the farmers with lost or damaged crops and property this winter season which recorded our second highest winter rainfall ever. Did I mention we are the driest inhabited country in the world?
If low rainfall, being the driest inhabited country in the world, is likened to low inflation then what households are experiencing higher inflation or heavy rainfall even flood levels?
It may come as no surprise that over the last 5 to 10 years that those who smoke, drink alcohol and/or are in poor health have been hit the hardest with over 5% per annum increase to prices. On the other hand if you have been buying clothes and phones you are actually paying less today than 5 or 10 years ago.
The surprise comes with the second hardest hit households. Those who pay for children’s education costs. Education costs have increased at an average of 5.66% per annum over the last five years, a higher rate than health (5.25%) and just behind the heavily taxed alcohol and tobacco products (5.68%). Those with kids are also more likely to have a mortgage (housing is the 4th highest category) and a job in a period of low wages growth.
For those who love a bit of detail the chart below tells the story.
Table 1 – Australia’s annualised inflation rate – Australian Bureau of Statistics, Consumer Price Index, Table 6401.0
Whilst the government and business would love us to spend our spare dollars, there is a case for saving toward significant future costs such as education or even saving for a “rainy day”. It can really take the pressure off when unexpected expenses or education costs with their associated sports fees, dance lessons, camps and technology costs bite, helping household’s weather-the-storm.
Andrew Meinel, General Manager Financial Services KeyInvest.
The information contained in this publication is based on the understanding KeyInvest (ABN 74 087 649 474 AFSL No. 240667) has of the relevant Australian legislation as at the date shown in this publication.
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