Title speaks for itself, I am not an economist.
Is the disparity currently more a matter of:
I am interested in common opinion, as well as some well-researched economy-savvy insight.
Assuming the basket of goods calculation:
https://www.rba.gov.au/education/resources/explainers/inflat…
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This site has become Chatgptbargain
I asked ChatGPT
Disparities between the official inflation rate and the cost of living can arise due to several factors:
Basket of Goods: The official inflation rate is calculated based on a fixed "basket of goods and services," which represents an average consumer's spending habits. However, individuals and families may have different consumption patterns, which can result in their actual cost of living being higher or lower than the official inflation rate suggests.
Geographic Variations: Inflation rates can vary by region and city. What's considered a reasonable cost of living in one area might be significantly different in another due to variations in housing, transportation, and other costs.
Quality Adjustments: In official inflation calculations, quality improvements in goods and services are factored in, which can lead to lower inflation rates. For example, if a smartphone becomes more advanced but maintains the same price, it may appear as if the cost of living has not increased, even though people are buying more advanced technology.
Substitution Effect: The official inflation rate uses a concept called the "substitution effect." It assumes that if the price of one item in the basket of goods increases significantly, people will switch to a cheaper alternative. However, in reality, this may not always be feasible or desirable, leading to higher costs for some individuals.
Data Collection and Methodology: Differences in data collection methods and methodologies used to calculate inflation can also contribute to disparities. Some may argue that official statistics underrepresent the real costs they face due to these methodological choices.
Economic Changes: Economic changes, such as recessions or periods of rapid economic growth, can impact the cost of living differently for various segments of the population. Those with fixed incomes or who are particularly vulnerable may experience a more significant disconnect between official inflation and their actual expenses.
Government Policies: Government policies, such as subsidies, price controls, or taxation, can influence the cost of living independently of inflation. These policies can either alleviate or exacerbate the disconnect between official inflation and actual expenses.
It's important to recognize that official inflation figures are statistical measures designed to provide a broad overview of price changes in the economy. They may not perfectly capture the real-world experiences of all individuals and families. As a result, many people rely on their own budgeting and financial assessments to determine their personal cost of living.
The disparity is because the CPI is a generic average measurement and you are a specific individual. If you look at the Living Cost Indexes then the right one will be slightly closer to you, but still generic.
Some people eg home owners with no mortgage, have have cost of living increases less than the CPI, for example
It’s also the case that you think the cost of living has gone up more than it has because you only notice the increases (not the decreases eg. notice blueberries are now very cheap?) and you notice the things you buy frequently eg food -
even though food is usually only a relatively small part of your overall expenditure - and you don’t notice the things your buy infrequently which may have decreased in pricing (eg cheap clothes, electronics).
In short - the CPI is never meant to measure your specific cost of living and your cost of living may not have changed the way you think it has. Porperty costs aside, obviously they have increased
Useful, thanks. I think I have been succeptible to seeing things as in your third paragraph.
notice blueberries
Strawberry too! Making the most of it while I can!!
To add for those interested,
The CPI represents the $ spent by an average consumer on goods, by category. This means while it tracks the prices of specific goods that represent the categories, the goods that are used to represent the categories will be changed if it's determined that consumers are changing their preferences. For example if the price of steak rises so high that consumers switch to chicken breast, the CPI will be updated to give more weight to changes in the price of chicken breast going forward. These are called hedonistic adjustments. This means the CPI can show a smaller price change than an individual will experience if they don't change their spending preferences.
The prices of goods themselves are also adjusted for changes in quality over time. These adjustments might not reflect actual changes in prices that consumers see, as the intention is to track changes in prices paid for equivalent goods. For example a 50 inch LCD TV might cost $1000 in year 1. In year 2 that TV costs $800. In year 3 that TV is discontinued and a new model, a 50 inch TV with smart features is put for sale for $1000. Instead of saying the price of a 50 inch TV increased from $800 to $1000 in between years 2 and 3, the ABS will calculate the value of the smart features added to the new model, and subtract that from the $1000 price. These quality adjustments can cause a CPI category to be negative (or less positive) when the actual cost of living (the actual $ you need to buy a TV) is increasing. This is particularly relevant for cars and electronics which are continually increasing in features and quality as new models are released - for the same or similar RRP. These categories bring down the CPI while actual spending remains unchanged.
Regarding housing costs, the CPI also does not measure changes in the price of land, it measures changes in the price paid to occupy land - change in rent and changes in mortgage costs. As mortgage lengths are increased over time, and the size of a plot of land decreases over time, the CPI will not be an accurate indicator of the increased price to purchase the same parcel of land over time.
Statistically the CPI is accurate, however it is used to measure changes in purchasing power, which it absolutely does not do. It measures inflation in the prices of a basket of goods, NOT inflation in the value of the currency. I would argue that the way CPI is commonly used is misleading, it benefits the owners of capital and disadvantages wage earners particularly as the CPI is used to adjust the value of many wage awards.
Useful, thanks!
"Why Is There Such a Disparity between The Official Inflation Rate and The Cost of Living?"
Because this and the alternative govt think more ppl can fix everything. It can't and won't.
TIP: Get your "business" in order.
Not following, entirely. You mean increasing immigration is leading to higher inflation than what is reported?
I'm assuming you don't mean paid parental leave, which has also increased recently. But that scenario is also supporting more people.
No it's hiding the problem, adding to the mess, costing the country, by way of clogging sh*t up, pressure on services,infrastructure and supply demand (price hikes) .
Australian govts have been building the roof before the walls for too long. The bust will come. And it will hurt. Big time.
Interesting. Do you think slowing immigration would see much of a short-term impact?
@Embaloo: And breeding less humans at the same time, yes.
You can't measure every outcome as $$$. That's the shit soup that landed us here.
Supply and demand has become, wishes and prayers.
Even before the forecast millions of migrants headed here we are way behind fixing broken shit and basic essential infrastructure. The ' we are bringing in ppl to fix the backlog' is a deluded scam.
The hospitals,roads,public transport,aged care,child care and every other log jam will just meltdown even more.
As we push into new developments and climate change kicks in what are we going to do, head hunt fire fighters? Import water? Produce energy via magic osmosis?
@Protractor: OK. I havent thought a whole heap about the effects of immigration. As far as breeding less humans goes, my opinion would differ regarding considering future generations as $$$ burden, my expectations are more positive, keeping in mind they are the future taxpayers, who if parented well and care about the country, will be keeping society ticking when we're old, and ideally getting educated and contributing to energy and productive advancements, as well as giving relationally - as I believe many in my generation have. I think its such a strange perception to see having offspring as selfish - when by default it forces a mindset of the opposite - such a contrast from previous generations where not having offspring was seen as selfish. One can analyse the $$$ impact, but what the the value of a life well lived?
Capitalism. Every one wants their piece of the inflation pie.
Relative Vs Absolute comparison.
Inflation is a rate of change over the previous year (relative measurement).
Cost of living is an absolute measurement, which is an accumulation of all previous price changes (compounding inflation).
Yep. I suppose by using the COL phrase, my intent was "percieved inflated prices", which %:% haven't been comparable.
Because the official rate is a load of concocted bollocks that has about as much grounding in real life pocket reality as a DeLorian time machine.
Derr….
Glad to see this mentioned, astounds me that so many assume it's unbiased.
Yep, calculation was rigged, eerrr officially "adjusted", in the 90s :/
The calculation is continually adjusted to track changes in peoples spending habits. Would you want it to be static, and include things that people no longer buy? Sounds kind of dumb to me.
As noted in the 'Monthly Consumer Price Index Indicator':
https://www.abs.gov.au/statistics/economy/price-indexes-and-…
The weights for the monthly CPI indicator are typically updated each year in October. This is to ensure the weights used in the CPI basket reflect contemporary household spending patterns. With the continued increase in Australians holidaying overseas, a partial update to the CPI weights has been implemented in July 2023. The partial update will see the weight for International holiday travel increase, with the weight for the other components in the basket adjusted to offset the increase in travel weights. The updated weights are available in ‘Data downloads’. A comprehensive update to the weights for monthly CPI indicator will be implemented in January 2024. The weights will continue to be updated in January in future years.
The issue is some people have an unreasonable expectation of what the purpose of the CPI is suppose to be.
It is only one in a long list of indicators.
Wow that link is a bit more helpful, good to see the breakdown. Gee the gas :S
@7ekn00 More than once!
eer, you mean adjusted to match what people actually buy?
The CPI today is far more accurate than it was in the 1990s, because logistics systems are far more accurate and the ABS has access the millions of data points from supermarkets and other stores. In the 1990s they would do a survey of a few selected shops and make a guess. https://www.abc.net.au/news/2021-07-28/consumer-price-index-…
Its hard when facts dont match your expectations, but there is no 'rigging' in the CPI. The problem is that people think the CPI means something that it doesnt. Its like when you are after the price of an apple (your cost of living) but you use the price for an avocado (CPI), and then you complain that the avocado price doesnt represent apple prices.
There is no disparity. My overall cost of living is up 5%, exactly as the official inflation rate says it is.
haha, I saw what you did there. :)
Same, mine is lower thanks to no loans and positive interest rates, property values and investments ;)
Next stage of the slow destruction plan is to wipe out stock values and introduce CBDCs, so I am trying to keep ahead of the elites plans (have shorted some of the top 100) :P
because the same mindset that calcs these figures also sold trickle down economics to the western world 50 years ago
Trickle down just made me smelly and wet.
I think Covid-19 was a key demonstration that this doesn't work anymore.
Can't afford steak? Substitute in mince in the CPI instead. Can't afford mince? Substitute for chicken. Can't afford chicken? Substitute for bugs. Can't afford Bill Gate's non-reproducing lab grown bugs? Mmm… Maybe that's why we're importing so many people.
Because RBA want to prolong the benefits to the boomers (yes its a gross generalisation) but if they actually incorporated rising house prices then there's a huge disparity.
The ABS calculates the CPI not the RBA.
Yeah, boomers should definitely never have had kids.
Win,win.
Wha?
Cost of living crisis? It appears farmers would rather shoot and bury sheep than let consumers have cheaper meat.
Playing politics with consumers and animal welfare as usual.
https://www.abc.net.au/news/2023-09-22/wa-sheep-producers-fe…
It doesnt seem to be (from your article and the one referenced in it) the farmers in control of the costs filtering through, its the processing costs?? What is even going on there and why?? :S
They are the ones breeding more they can sell because they want to cash in on high prices, and they are the ones who can shoot them and bury them. They already have enough apologists and enablers.
chatgpt demographic