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the costs of living

Jun, 22, 2011 | No Comments | life, money, reflections

increases — or changes in the way we live?

Australia may have the third lowest cost of living in the developed world after the US and New Zealandi and relatively stable CPI figures yet it seems many Australians are quite concerned about a possible leap in basic living costs. A recent capital city newspaper reader survey found that 81 per cent of those responding believed that the true cost of living was way above the recent annual consumer price index (CPI) figure of 3.3 per cent (or a still modest 2.6 per cent, adjusted for volatile items).ii

For many of us, the main cause for concern seems to be recent increases in the price of water and power, the two utilities we can’t live without and whose bills we receive every quarter. The most recently published Nielsen Research Global Online Consumer Survey (June 2010) reported that increasing utility bills were by far the biggest concern among Australian consumersiii  and these cost concerns were certainly reflected in Australian Bureau of Statistics (ABS) data. The latest quarterly statistics report that while inflation rose 2.7 per cent in 2010, electricity rose 12.5 per centiv, and water and sewerage costs by 12.8 per cent. Recent press headlines flag even higher utility prices in the pipeline.

On top of that, as these items move up in price, they have a greater impact on the CPI when the ABS recalibrates the index every five years. In the latest adjustment, food moved up 1 per cent while utilities and power took up an extra 1.8 per cent of the index.v

electricity price shocks: preventable?

What can consumers do about rising electricity costs? Apart from choosing energy-smart appliances and running fewer of them, it seems that an effective answer might be to switch to solar. For the first time the cost of solar is almost level pegging with the cost of conventional power. Thanks to government incentives, the falling cost of the technology, the rise in the Australian dollar, and increases in the costs of conventional power, those who switch to solar should be getting free electricity for a decade once the system is paid off over 7–10 years. In fact, those who generate enough solar power to sell the excess back to the supplier grid might even make a profit out of

Thankfully, it seems that the proposed carbon tax will not impact heavily on household electricity costs if implemented. Estimates suggest that it could add up to between $2.70 and $4.20 a week to the bill, but that should be offset by compensation promised to low and middle-income earners.vii

driving off the road?

With turmoil in the Middle East, petrol prices increased by 9.1 per cent last yearviii  and indications are that this trend may continue. Similar price pressures in the US, the home of the motor vehicle, have seen an increase in sales of fuel-efficient vehicles, a drop in the number of miles being driven, and a fall in discretionary spending.ix

More than 65 per cent of Australians already use public transport to get to work but other alternatives are being embraced. The number of adults riding two wheels to work pushed bike sales to 1.3 million in 2010x  and two other options, car sharing and car pooling, are growing fast. Car sharing, mainly in inner city areas, gives people access to a car on an hourly basis, while car pooling makes it easier for those living further out to share rides and reduce costs.xi

mortgage rates – the great unknown

J. P. Morgan challenged the Reserve Bank’s annual CPI figure of 2.7 per cent for the year to September 2010, claiming that the actual rate was closer to 4.6 per cent, mainly as a result of 2010 increases in bank mortgage rates which rose 32 per cent in that periodxii. Will Australia’s 95 per cent employment rate and our rising dollar persuade the RBA to increase the official rate sooner rather than later? And how will the banks react to that? Only time will tell.

could this be you in 2021?

One interesting fact about Australia is that in spite of all the talk about a two speed economy, our prosperity does not seem to depend on where we live. A recent study by Bankwest reported that the two ‘boom states’, Western Australia and Queensland, had the highest percentage of Australians in financial difficulty.xiii

Despite where you live in Australia, if the present trends continue, you may well find yourself in a decade’s time living in a solar powered house and driving a shared car. Hopefully, you will still be living in one of the world’s strongest economies; life might be quite different, but just as good.

If you want to discuss how you might adjust to these changes and their impacts on your financial priorities, please don’t hesitate to call.

ii ABS Media Release, 27 Apr. 11. Plus commentary and analysis, JB Were (Tim Toohey), 27 Apr. 11
iii Nielsen Global Online Consumer Survey for Quarter 2, 2010
v, March 23, 2011
vii Abbott’s beef on carbon tax doesn’t add up, Lenore Taylor, SMH, April9, 2001
ix Gas Prices Rise, and Economists Seek Tipping Point, by Christine Hauser. NYT 11 Apr 2011.
x ABS data
xi Pooling for the future, Denise Cullen, The Age, May 30, 2007
xii The true cost of living in dispute – Chris Zappone SMH February 8, 2011
xiii Bankwest The Financial Fitness Index 2011

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