Australian Bureau of Statistics
1350.0 - Australian Economic Indicators, Sep 2004
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 31/08/2004
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Feature Article - Analytical living cost indexes for selected Australian household types: update to June 2004
TABLE 1: ESTIMATED AVERAGE WEEKLY EXPENDITURE DURING 1998-99 BY COMMODITY GROUP AND HOUSEHOLD TYPE AT JUNE QUARTER 2000 PRICES(a)
TABLE 2 : EXPENDITURE WEIGHTS BY MAJOR COMMODITY GROUP AND HOUSEHOLD TYPE AT JUNE QUARTER 2000 PRICES
There are some notable differences in the expenditure weights across the household types. For example the proportion of expenditure allocated to Food is highest for Age pensioner households, closely followed by Other government transfer recipient households. Employee households allocate a higher proportion of their expenditures to Transportation, Education and Miscellaneous (which includes interest charges) than the other household groups. Other government transfer recipients allocate higher proportions of their expenditures to Housing, Alcohol and tobacco and Communication than the other household types. Self-funded retiree households allocate higher proportions of their expenditures to Household furnishings, supplies and services, Health and Recreation than the other household types.
The index series for the various household types from June quarter 1998 to June quarter 2004 are shown in Chart 1 and quarterly percentage changes in the indexes in Chart 2. The data on which the charts are based are provided in Table 3.
CHART 1: INDEX NUMBERS BY HOUSEHOLD TYPE,
June quarter 1998 =100.0
CHART 2: PERCENTAGE CHANGE,
(from previous quarter)
TABLE 3: LIVING COST INDEXES AND THE CPI
Over the four quarters from June 2003 to June 2004, changes in living costs ranged from a low of 2.2% (Self-funded retiree households) to a high of 3.3% (Employee households). The CPI rose by 2.5% over the same period. The change in living costs by household type for the most recent four quarters compares with those in the previous year (to June 2003) when Self-funded retirees also experienced the lowest increase (2.7%) and Employee households experienced the highest increase (3.0%).
Over the six-year period covered by the indexes, Self-funded retirees experienced the lowest increase in living costs of 18.6% and Age pensioner households the highest increase of 20.0%. These outcomes compare with the increase in the CPI over the period of 19.7%.
Changes over the last 12 months in the price indexes at the equivalent of the CPI commodity group level are presented in Table 4 along with corresponding data for the CPI. Differences in the price experiences of household types at the group level reflect differences in expenditure weights at the lower levels, differences in weights at the state level and differences in prices faced by some household types. Some of these impacts are discussed below.
TABLE 4: CHANGE IN LIVING COST INDEXES BY COMMODITY GROUP JUNE QUARTER 2003 TO JUNE QUARTER 2004
At the group level the most noticeable difference in price movements by household type was recorded for Miscellaneous. This commodity group includes interest charges, insurance and child care. Increases in interest charges on home loans (reflecting both rising house prices and increasing mortgage interest rates) in conjunction with the greater weight interest charges have in the expenditures of Employee households, resulted in a rise of 9.9% in the index for Miscellaneous for these households. Also, child care costs rose strongly in this period. On the other hand, as Age pensioners and Self-funded retirees generally have little expenditure on interest charges and child care, they experienced more moderate overall increases in prices for this commodity group.
For most other commodity groups the differences in prices movements are small. However, several observations are warranted. The lower increase in the Housing index for Other government transfer recipient households largely reflects their higher relative expenditure on rents. Rents increased at a lower rate than prices of other commodities in this group such as property rates, electricity and gas (noting that house purchase is not included in the living cost indexes).
The nil movement in the Household furnishings, supplies and services index for Age pensioner and Self-funded retiree households is due to their higher relative expenditure on household services, which increased in price and offset falls in prices for furniture and household appliances. The higher increase in the Health index for Self-funded retiree households reflects, in part, their high level of health insurance coverage, for which fund membership fees increased by around 8% on average through the year.
The increase in the Transportation index for Other government transfer recipient households reflects higher relative expenditure on automotive fuel (which increased by around 12% on average through the year) and less relative expenditure on new motor vehicles (which decreased by around 3% on average through the year) when compared with the other household groups. The smaller decrease in the Recreation index for Age pensioner and Self-funded retiree households is due to their lower relative expenditure on audio, visual and computing equipment, which decreased over the year and higher relative expenditure on domestic holiday travel and accommodation, which increased over the year, when compared with Employee and Other government transfer recipient households.
These analytical indexes have been designed specifically to answer the question:
‘By how much would after tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?’
The key issues these indexes can address is whether price changes result in different household types experiencing significantly different changes in their aggregate living costs and whether the CPI is an adequate proxy for changes in these living costs.
In the previous studies it was concluded that changes in living costs had been broadly similar across the selected household types. The extension of the analysis to June 2004 is generally consistent with those earlier conclusions, although perceptions as to what are significant differences may vary between analysts. Further, it could be argued that the CPI provides a reasonable estimate of changes in living costs for each of the selected household types over this period.
These indexes have been constructed to reflect the experiences of population groups as a whole, and not the experiences of any individual household. In this regard it is particularly important to note that the indexes do not reflect the changes in living costs experienced by households as a direct consequence of their moving through the life cycle (e.g. as a result of family formation and ageing). Furthermore, these indexes have been designed to provide a general measure of changes in living costs for each of the population subgroups; they do not measure changes in the relative standard of living of different population subgroups.
For more information about analytical living cost indexes, contact Steve Whennan on (02) 6252 6251 or email <firstname.lastname@example.org>.
1 ‘Analytical Living Cost Indexes for Selected Australian Household Types’, Australian Economic Indicators, June 2001 (cat. no. 1350.0), ‘Analytical Living Cost indexes for Selected Australian Household Types: An Update’, Australian Economic Indicators, December 2002 and October 2003 (cat. no. 1350.0).
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This page last updated 17 September 2008