Interest rates cuts have reduced the cost of living for employee households

Inflation figures are done by trying to work out the average spending by all Australian households; the cost of living figures however split up the households into groups. They do this because obviously a household with people working are going to have different spending habits that retirees, or those on government benefits.

Also importantly the cost of living measures count the cost of repaying a mortgage, whereas the CPI figures do not. And because this year there have been interest rates cut, that has meant the cost of living for those with a mortgage has gone up by less than overall inflation. The impact is biggest for “Employee Households” because they are the ones most likely to be paying off a mortgage, whereas those who are on the age pension or other government benefits are much less likely to have a home loan.

While inflation in the year to September grew 3.2%, the cost of living for employee households rose just 2.6%.

The news was not so good for those who neither have a mortgage or who spend more of their income on necessities. As we noted last week, the big driver of inflation was electricity prices, rents, and other necessities. As a result, those who do not get the benefit of the falling interest rates saw their cost of living rise by more than inflation.