By Shreya Nidumolu
WHY YOUR COFFEE COSTS MORE, WHILE YOUR REAL WAGES STAY STAGNANT.
Voted the ‘2023 Word of the Year’ by Macquarie Dictionary, ‘cozzie livs’ playfully refers to the term ‘cost of living’ but is most often used synonymously with the cost-of-living crisis that many Australians are facing.
The cost of living is measured by the Consumer Price Index (CPI), which is a basket of goods and services that represent household purchases. As the price of the goods and services in the basket increase, so does the CPI. This change in price is what we all know as inflation.
The current iteration of cozzie livs began around June of 2021, as the Reserve Bank of Australia (RBA) reported inflation to be at 3.8% – well above the ongoing standard of 2-3%.
It is important to note the considerations around which items may be included in the basket The items must have prices that are specific and identifiable, such as a 1kg bag of rice or a concession bus ticket. Additionally, no items can be excluded based on any social or moral perceptions. So, despite alcohol or cigarettes being judged as socially undesirable, they are also included due to their significance in general household expenditure.
However, the most significant drawback of using the CPI to measure cozzie livs is what is excluded from the basket. Since 1998, the Australian Bureau of Statistics (ABS) has not included home mortgage or other interest payments in its calculations, as it stated that this would make the index worse at measuring living costs. This information is listed on its website, to ensure that consumers are aware that the CPI is not an ideal measure to assess changes in the purchasing power of households’ disposable income.
When mortgage rates are stable, the CPI can function accurately at reflecting living costs, but increasing interest rates and steep growth in the mortgage market restrict this purpose The CPI increased to 5.4% in the year up to September 2023, but the living cost index (which includes mortgage and interest payments) increased to a whopping 9% in the same time period!
One of the most effective ways to relieve pressure on Australian consumers is to increase real wages in relation to inflationary stress. Real wage growth is when the wage index is growing faster than the CPI. This month, Treasurer Jim Chalmers stated that real wages grew for the first time in several years, but his comparison was made to the CPI and not the living cost index. This means that on top of facing severe financial stress, Australians may not be clear about the true state of the economy.
Though inflation has come down from 5.4% in the September quarter to 4.1% in the December quarter, cozzie livs are still causing stress. Since December 2020, wages have risen 10%, but prices of goods and services have gone up 16.1%, and this is a gap that will take a long time to recover from. This becomes worse still when understood that in the last 12 months, prices of essential (or demand- inelastic) goods rose 4.8%. Yes, goods such as utility bills, food, rent, and insurance have increased almost 5%!
As inflation continues to decline, the economic health of households becomes a more pressing issue. Comparing retail spending in December 2022 and 2023 as peak shopping periods, it decreased 7.9%. Consumers simply cannot afford to shop or save like they could pre-pandemic or continue the same momentum from even just one year ago. There are other factors that also cause consumers to feel as though they cannot afford the cost of living anymore, such as shrinkflation. This is a practice where goods and services cost the same, yet the product is quantifiably smaller. Think of the chip packets with more air or a theme park ticket with less rides available. Companies discretely decrease the amount of product so as not to alert consumers. These changes may be implemented over a number of years.
Then, there’s skimpflation, shrinkflation’s stingier cousin. This is when you pay the same for a good or service, but its quality is cheaper. When you notice more self-checkouts in the supermarket or less egg-yolk in your mayonnaise (replaced with cheaper chemicals), you are experiencing skimpflation. Consumers are deceived time and time again, but companies and governments who do not provide full transparency to already vulnerable Australians.
So, if you feel like you haven’t been getting enough bang for your buck, it’s because you probably haven’t. However, in these times of economic uncertainty, empowering individuals with financial literacy is vital. By fostering a culture of informed decision-making and resourcefulness, we can collectively navigate the challenges created by cozzie livs and take proactive steps to mitigate its impacts.
*Cover Photo by Alexander Grey on Unsplash
On Dit 