Disclaimer: The author has since re-joined the Australian Public Service after the submission of this article. Views expressed are the author’s and do not represent those of the Australian Government nor any government agency.
In the face of the sudden uptick in inflation, Australia’s central bank hiked interest rates 12 times from May 2022, more than doubling the monthly mortgage repayments of Australian households in the most aggressive cycle of monetary policy tightening since 1989.
Even so, by June 2022, rising price levels had wiped out a decade of real wages growth, and by December, annualised inflation reached its highest in 32 years. (FIGURE 1)
This one-two punch has hit workers the hardest, with the latest Wage Price Index data indicating real wages fell to their lowest level since December 2009. Working households suffered the largest annual cost-of-living increases of any household group at 9.6 per cent—the largest-ever increase in the ABS’ Employee Living Cost Index (LCI) since the LCI began in 1999.1 (FIGURE 2)
Of that 9.6 per cent rise in workers’ living costs, 7.6 percentage points came from Insurance and Financial Services alone (including mortgage costs). Mortgage interest charges rose by 9.8 per cent in the June 2023 quarter alone, and 91.6 per cent over the year.2
Source: Australian Bureau of Statistics, ‘Consumer Price Index, Australia’, June Quarter 2023.
While the Consumer Price Index (CPI) excludes mortgage interest charges, rents are included, and have risen by 6.7 per cent in the year-to-June 2023 (higher than the 6 per cent headline inflation) in the largest annual rise since 2009, even as inflation in the broader Housing Group (and newly-built owner-occupied housing) continue to ease.
The latest data from the new ABS Monthly CPI Indicator illustrates the scale of the problem, with Housing the largest contributor to the July annual increase eventhe Monthly Indicator’s year-to-June figures), led by rental price rises of 7.6 per cent.4
