High prices are hurting renters and low-income households
But we’re also seeing the prices of non-discretionary items rising much more than the prices of “discretionary items”. This is bad news for lower-income households, because they spend a greater share of the income on non-discretionary items.
In the March quarter, housing costs contributed 0.84% points to overall inflation growth. Given the CPI in the March quarter rose 1.4%, that means housing accounted for nearly 61% of all of the inflation in the first three months of the year. When we break this down to individual items, it’s clear why: gas, electricity, rents and new dwelling purchases were all in the top 15 contributors to inflation:Nine of the biggest 15 drivers of inflation in the first three months of this year were non-discretionary items .
But, importantly, these price rises are in areas that actually are controllable by government intervention and barely subject to greater demand. Gas and electricity prices aren’t going up because people are suddenly using more of them. The same goes with medical and hospital services. Education costs are also very much within the government’s remit, as are pharmaceutical products.Take away the costs of these items and inflation is actually around where the RBA would like it to be.
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